Platinum price back above $1,000 on South Africa wage deal

Platinum futures trading on the Nymex market in New York jumped to above the $1,000 level exchanging hands at $1,005.70 an ounce, following the signing of a comprehensive wage deal by mines in top producer South Africa.
Year to date the platinum price is now up 16% year to date after peaking at $1,086 in August.

South Africa's miners are responsible for 73% of global annual supply and the receding threat of strikes in the country is weighing on the outlook for the metal. Payrolls for the country's deep level mines account for half operating costs and during 2014’s grueling five-month strike South Africa lost some 1.3 million ounces of platinum production worth more than $2.2 billion or 1% of GDP.

The agreement will also likely benefit consumer and business sentiment, both of which have not rebounded from 2009 record lows and are only beginning to show signs of recovery

In a research note Moody’s Investor Services said the agreement, similar to one signed by the country’s gold mining companies last year, will bring stability to the sector and South Africa’s economy:

Mining’s importance to South Africa’s GDP is underrepresented: although the sector constitutes around 8.6% of the sovereign’s GDP, many sectors directly and indirectly rely on it for their revenues. For example, downstream industries utilizing mining for their inputs include electricity, steel and cement, while side industries that sustain mining include infrastructure and housing.

Besides protecting GDP, avoiding production losses also protects against a depletion of foreign reserves, with the mining sector accounting for around 50% of foreign currency earnings, an important contributor to South Africa’s ongoing ability to service foreign currency debt.

The agreement will also likely benefit consumer and business sentiment, both of which have not rebounded from 2009 record lows and are only beginning to show signs of recovery. The mining sector is an import source of investment (around 12% of total investment) and employment in South Africa, with around 500,000 workers directly employed and up to 800,000 workers indirectly employed.

Miners’ economic circumstances have always influenced South African consumers’ demand for goods and services.