South African Government Lowers Export Quota For Platinum Producers

South African platinum producers are already enduring significant production drops caused by the massive strike activities among mining workers. Now that the situation is somewhat back to normal, the government led by the African National Congress (ANC) is upsetting companies and markets with its plans to introduce legal changes.

As if the sector wasn't already burdened enough by the striking activities - which carried on throughout the first half of this year and almost all through the summer - Jacob Zuma's ANC government is planning important legal changes which could especially weigh on the platinum sector. South Africa should for once and for all become aware that with such richness in natural resources the country has enormous advantages when it comes to competing with other regions of the world.

Instead of just focussing on the export of gold, platinum or palladium, South Africa should use its resources to stimulate its own industry. Ultimately, and starting next week, the ANC leaders plan to lower the South African platinum export quota. On one hand this will probably boost the platinum price - provided demand doesn't drop drastically in the face of a faltering world economy. On the other hand this will sour local mining companies' business.

Investing in mining shares is probably not very lucrative considering the unpredictable character of governments in important producing countries such as South Africa, Zimbabwe, Zambia and other African states. Although earlier plans to nationalise the mining industry have been removed from the South African agenda once Julius Malema, president of the ANC Youth League, was dismissed, now the ANC will force local platinum producers to sell part of their yearly production to the local industry at discount prices.

Something that should actually have a positive effect on the country's economy is once again triggering strong reactions among distressed mining investors. With these new measures South African platinum producers will miss out on important export revenues, which were supposed to compensate -at least in part – for the important losses caused by production drops during the first half of the year. But these new laws will impose new platinum export quota which mining companies will have to abide by.

Furthermore, these new laws will also determine the platinum quota local mining companies will have to sell at discount prices to South African emerging industrial companies. According to current information these amounts will be small, but observers are expecting the new regulations with both interest and fear. The South African Chamber of Commerce mainly intends to subsidise the local battery and fuel cell industry.

By following this strategy South Africa is clearly aiming to start manufacturing those products – which are used in the automobile industry – instead of merely exporting important metals such as platinum to foreign clients which will then use them to manufacture important end products. South Africa should use its unlimited access to important natural resources to foster its own industry. And, so it is said, mining companies have to make their contribution. But this is not the only development that might kill investors' appetite for mining shares.

In recent weeks the South African media has been reporting that the ANC government is also working on new mining laws aimed at increasing the country's revenues. Apparently, this will include rising fees and taxes, even if mines are dealing with both production drops and a worsening economic situation at the world markets. Recent supply shortages did not have a positive effect on the platinum price, as it seems that commodities markets have already factored in this development. South Africa is the world's largest producer of PGM metals, which also include palladium.