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South African mine strikes doing little to lift platinum

Ingots of 99.97 and 99.98 percent pure platinum are placed at the Krastsvetmet nonferrous metals plant in Russia's Siberian city of Krasnoyarsk April 12, 2012. REUTERS/Ilya Naymushin

By Jan Harvey LONDON (Reuters) - Given that South Africa is the source of 75 percent of the world's platinum supply, the fact that prices have responded so little to strike action there this year has surprised investors. Prices barely reacted to news on Thursday that the hardline AMCU union had declared a wage dispute with Lonmin, raising the possibility of an industry-wide strike that could hit half of global output. Five years ago, the threat of production cuts in South Africa was the primary force driving platinum prices to record highs at $2,290 an ounce. But times have changed. Even after last year's deadly wildcat strikes, when more than 50 people were killed in the platinum sector, prices rose only briefly. The following quarter, they fell nearly 15 percent. Earlier this year, a two-week strike at major producers Anglo American Platinum, which the company said cost it 44,000 ounces of lost output, was accompanied by a 2 percent drop in platinum prices. "The strike at Amplats' Rustenburg operations hardly moved the dial," Investec analyst Marc Elliott said. "If widespread strike action evolves then it's certainly supportive, but it will depend on if workers strike just for a week, or longer." "If strikes were to drag on, then prices will probably gather momentum. People might get a little bit nervous if nothing's resolved within two weeks," he said. "(But) I don't get any sense that people will panic just yet." Standard Bank estimated this month that platinum inventories are equivalent to 1,019 days of consumption. That has helped cushion prices from even major supply and demand changes. Absa Capital's new platinum-backed exchange-traded fund in Johannesburg, for instance, has pulled in 770,000 ounces of metal since its launch in April, but prices have declined 5 percent in that period. Amplats said this month that despite strike action, it was sticking to its full-year production target of 2.3 million ounces. Its group equivalent refined platinum production increased 5 percent in the quarter to end September, it said. "The level of disruption this year in the platinum sector, be it through strike action, (safety stoppages), weather-related breakdowns, collapses, has been very low compared to historical levels," Deutsche Bank analyst Grant Sporre said. "The average is about 250,000 ounces lost. This year it's running at about 90,000 ounces lost." On the other side of the equation, soft demand from the metal's biggest demand source -- carmakers, who use platinum in catalytic converters -- since the start of the financial crisis has taken pressure off the supply chain. The European car market is still struggling as consumer confidence languishes. Chinese consumption of the metal has risen, but analysts say it is highly price-sensitive. Until demand rises to a level stockpiles cannot meet, a long-lasting price rise is unlikely. "Recently, as a strike has been launched, the simple fact of it happening hasn't been enough to move the price," Mitsui Precious Metals analyst David Jollie said. "If you expect the price to move higher, people need to see a more widespread or deeper strike, or a more intractable dispute. That's the sort of thing that's required to drive the price substantially higher."