A Look At Our Neigbour: Long-running platinum strike is over, at least “Officially”

The long-running platinum strike formally ended on June 24th, almost exactly five months after it started, when the Association of Mineworkers and Construction Union (AMCU) and employers signed a three year wage deal.

Analysis
A settlement had been on the horizon since June 12th after AMCU accepted an improved wage offer in principle, but fresh demands by the union, including a R3,000 (US$285) return-to-work bonus and a guarantee against retrenchments, held up a final deal.

Following several further rounds of negotiations, the firms involved—Amplats, Implats and Lonmin—made some small concessions but refused to meet most of the extra demands. Nonetheless, 20,000 mine workers at a mass meeting in Rustenberg on June 23rd gave their wholehearted approval to the deal as AMCU’s leader, Joseph Mathunjwa, spelled out the details. The two lowest-paid categories will receive an approximate 13% increase (or R1,000 a month in cash terms) and higher categories a 7.5 8% rise.

However, despite expressing satisfaction with the deal, mine workers will need several years to regain the R10.7bn (US$1bn) in lost wages. Adding in production losses of R24bn, the strike has cost approximately 1% of GDP, of which the bulk is unrecoverable.

The strike’s end has several positive implications, including a revival of the local platinum-belt economy, a rise in mining production and an increase in exports.

The settlement will also support the rand, which strengthened to R10.55:US$1 on June 24th, a two week high. However, it will take at least three months to restore the mines to full production and the future of platinum mining remains uncertain.

Flat world prices (despite the strike) and rising costs (on both wages and non-wages) mean that company margins will come under increasing pressure. Some loss-making shafts are likely to close, although mining firms are unlikely to act immediately because of the risk of sparking a fresh walk-out. Economic prospects are also being clouded by the threat of a mass strike in the metals and engineering segment starting on July 1st. Talks are ongoing but the gap between union demands (for a 15% pay rise) and employers’ offers (of about 7 8%) remains wide.

Impact on the forecast
The platinum settlement will boost mining production and exports in the second half, and underpin a modest recovery in the rand. However, the lengthy period needed to restart platinum operations means that the threat of a further strike continues to pose downside risks to our 2014 growth forecast.(TheEconomist)