The mass unrest that has gripped much of KwaZulu Natal and Gauteng over the past few weeks, following the arrest of South Africa’s former President Jacob Zuma is likely to have serious economic consequences, and not just locally.
“In the platinum group metals world, South Africa is a superpower, responsible for 78% of global platinum production and 37% of global palladium production,” explains Timothy Harvey, the chief executive of NTree International, a specialist in Exchange Traded Commodities.
“However, despite the size of its reserves and share of global production, the country is often beset by supply disruption concerns. In 2020 South African mining disruptions from power outages and Covid-related mining closures resulted in platinum and palladium production declining approximately 25% and 13% respectively.”
And, whilst it appears that the recent rioting has not affected the production of platinum and palladium, the widespread violence has disrupted ports in Durban and Richards Bay, as well as key rail lines between Johannesburg and Durban, and the N3 highway connecting Gauteng and KwaZulu-Natal provinces.
“In a tight metals market, which is expected to get even tighter as the world transitions to clean energy, the supply chain vulnerability in one of the largest global metal producers is a major risk and one that is difficult to hedge,” continues Harvey.
“This naturally begs the question, is there a risk premium on the supply of South African PGMs and do the supply forecasts for the clean energy transition metals incorporate the risks of disruption in emerging markets?”