LONMIN finds itself stuck between a rock and a hard place in South Africa. Getting its miners back to work might seem an unmitigated positive, but it runs the risk of returning the price action in the sector – and on the metal it mines – to some very ugly fundamentals. Which may go some way to explaining why its shares enjoyed such a brief spike yesterday.
The price of platinum has been climbing since August, but only on the back of the uncertainty and lost supply caused by the strikes. Over the last week, the trend has been downward again. Although ongoing unrest at other mines may give it some support, even at its September peak platinum was just at a level it last reached six months ago.
The trouble with platinum is that it is so useful. According to Johnson Matthey, almost two thirds of the demand for the metal in 2011, 65 per cent, was accounted for by the production of catalytic converters and other industrial uses. Rather than matching gold’s status as a store of value, platinum is easy prey in every downturn.
Now look at this week’s figures on new car sales in Europe. They fell 8.5 per cent in August. One more month and they will have been falling for a year straight. They haven’t been so bad for two decades. That’s also terrible news for the platinum industry, given its reliance on all those catalytic converters to keep demand up. Johnson Matthey calculates that 48 per cent of the 2011 platinum supply was called for by the global autocatalyst industry. Catalytic converters accounted for 67 per cent of European demand, which itself made up 36 per cent of global net demand.
So it’s hard to see what shine there is staying on platinum if the mines remain open. Lonmin looks like it has solved one problem, only to have to face another.