The long-term fundamentals of South Africa’s platinum mining industry remain attractive, despite labour unrest, increasing electricity prices and high operating costs, research firm Frost & Sullivan has indicated.

The growing global vehicle fleet and the improving performance of the US and European Union economies are expected to result in growing demand for platinum in the medium term.

Frost & Sullivan states that a market correction is inevitable in the medium to long term, which will reverse the current trend in the local industry.

South Africa accounts for about 70% of global platinum supply, while growth in the jewellery and medical sectors, which currently constitute 40% of total platinum demand, is expected to increase, thus elevating the 6.24-million ounces of demand in 2012.

“With South Africa responsible for producing a large percentage of global platinum output and key end markets driving demand for the resource, there are more reasons why platinum has a posi- tive outlook for the future.

“The global automotive sector will look to South Africa for the supply of platinum when demand for vehicles increases. It is important, however, that key stakeholders, including government, mineworkers and mining companies, reach a middle ground to mutually benefit from the mining of platinum as a resource,” Frost & Sullivan mining research associate Neelofar Shariff says.

The firm further says that the Platinum Sector Peace and Stability Accord signed by government, labour unions and mining houses, in February, to create a mutual forum where the uncertainty plaguing the platinum sector in South Africa could be eradicated, creates a platform where major stakeholders can discuss and share opinions on matters within the platinum industry.

Frost & Sullivan warns, however, that conflict between the Association of Mineworkers and Construction Union and the National Union of Mineworkers has the potential to reverse the progress the platinum sector has made in resolving challenges.

The new accord states that only the majority union in certain workplaces has authority to enter into wage negotiations, which results in a power struggle between the two unions and increases the risk of further violent action.

Last year, strikes in the sector resulted in a production loss of 500 000 oz, a repeat of which will negatively impact on investor confidence and raise questions about the sustainability of platinum operations in South Africa.

“The violence that occurred at the Marikana [platinum mine] in 2012 proves that labour uncertainty can have adverse effects on the overall sector. Going forward, labour challenges are bound to have a [significant] impact on future platinum supply,” states Shariff.

Frost & Sullivan further points out that a fall in platinum production will increase platinum prices, raising the cost of inputs for key end-user markets. Given that platinum follows a cyclical production trend, exacerbation of this situation could possibly lead to a decrease in forecast demand.

“The decline in demand from end-users will lead to a decrease in revenues for platinum mining companies. South Africa will, therefore, be negatively impacted, as 21% of the country’s mineral revenues in 2012 were generated from the platinum sector,” the firm states.

South Africa’s mining activities contribute about 3% to gross domestic product (GDP) in direct activities and 10% in second-round multiplier effects to the economy. The exit of platinum companies will, therefore, have a much greater impact in terms of revenue and job losses, and ultimately negatively impact on South Africa’s GDP.

“Frost & Sullivan believes it is crucial for the alignment of the objectives of key stakeholders to take place, hopefully leading to the adjustment of investor sentiment [regarding] the South African platinum industry,” she says.