Iron Ore, Coal Prices May Fall Victim To South African Miners’ Strikes

In addition to platinum group metals’ (PGMs) supply and prices getting hit by South African mining strikes, Kumba Iron Ore, a unit of Anglo American and among the top 10 iron ore miners in the world with production of 41.3 million tons in 2011, is now also affected.

Reuters said Kumba had been thought safe from the strikes because in December, rank-and-file employees there who had worked for at least five years were given a lump sum of about 345,000 rand ($41,200) each after taxes as part of a share scheme.

This represented a fortune to workers earning as little as 7,000 rand a month, although it was not immediately clear if any of the strikers were among the 6,200 who had benefited from the plan.

The fear is coal could be next.

Nearly all (some 85 percent) of South African electricity is produced from coal, as well as coal being a major export earner.

The whole mining industry, but particularly energy-intensive products like ferrochrome, are heavily reliant on electricity produced by Eskom, the near-monopoly utility struggling to overcome rolling blackouts in 2008. Widespread strikes in the coal industry could bring the whole mining sector, if not the country, to its knees.

Worker militancy nearly always looks like collective suicide from the outside; but in a country where at least 25 percent of employable adults are jobless and the gap between rich and poor has, if anything, widened since apartheid came to an end, there is growing dissatisfaction with the workers’ lot.

Throw in an ineffective politicized mining union, political infighting at a national level and many mines being run by foreign corporations perceived as uncaring to local interests, and you have a powder keg with the potential to get much worse before it gets better.

So far prices of PGMs, chrome and other metals have not reacted too strongly to these South African events, but buyers exposed to the cost of such metals would be advised to keep an eye on events in the Rainbow Nation – it wouldn’t take much of an escalation for some serious supply issues to develop, or the threat of them to drive up prices.

By Stuart Burns