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In the PGM world, South Africa is a superpower, responsible for 78% of global platinum production and 37% of global palladium production.

However, despite the size of its reserves and share of global production, the country is often beset by supply disruption concerns.

The recent rioting and looting on the back of the arrest of former president Jacob Zuma once again highlights the potential for disruption to South African supply of key minerals.

Platinum CFDs are currently well off their 12 month highs of over $1300. At time of writing Capital.com was quoting just under $1100 for their platinum CFD. Platinum has been looking as a fairly solid resistance level at just north of $1000 for the last year or so.

Palladium CFDs are well up on their levels from this time last year, following a surge in global palladium prices in late March / early April.

Disruption to South African mining

In 2020 South African mining disruptions from power outages and Covid-related mining closures resulted in platinum and palladium production declining approximately 25% and 13% respectively.

Whilst it appears that the recent rioting has not affected the production of platinum and palladium, the widespread violence disrupted ports in Durban and Richards Bay, as well as key rail lines between Johannesburg and Durban, and the N3 highway connecting Gauteng and KwaZulu-Natal provinces.

“In a tight metals market which is expected to get even tighter as the world transitions to clean energy, the supply chain vulnerability in one of the largest global metal producers is a major risk and one that is difficult to hedge,” said Timothy Harvey, CEO at metals ETC specialist NTree. “This naturally begs the question, is there a risk premium on the supply of South African PGMs and do the supply forecasts for the clean energy transition metals incorporate the risks of disruption in emerging markets?”

Let’s not forget the pandemic

South Africa is still reeling from the pandemic. The country has already recorded the highest death rate per 100,000 people in Africa, and the tenth highest in the world. As a third wave of infections swells, fresh lockdowns are in place. Barely 2 percent of the country’s 60 million people have been vaccinated as South Africa, like the rest of the continent, struggles to get access to jabs that have been bought up by wealthier countries.

Platinum miners are already producing some punchy numbers however. Anglo American Platinum announced this week that it would be paying out over 46 billion rand in dividends to shareholders, which represents a record for the company. The platinum miner said it was in a very strong cash position with over 57 billion rand in the treasury.

Anglo American Platinum (JSE:AMS) has also been the beneficiary of the strong ZAR / USD rate. The numbers out of the company will be reassuring news for backers of South African platinum projects and are also evidence that the SA mining sector is getting past the impact of pandemic lockdowns.

The big question is going to be whether the political situation deteriorates further in South Africa. While we are seeing production picking up in the country, more problems on the street could mean platinum production could be undermined at a time when we are anticipating a strong 12 months of international demand for the metal.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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