The Wall Street Journal-20080126-Metals Rush Strains Power Grids- Pushes Platinum to Highs
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Metals Rush Strains Power Grids, Pushes Platinum to Highs
A world-wide scramble to pull valuable commodities out of the ground is putting a strain on many countries' power grids -- and further boosting the price of many hot metals.
The latest example: Platinum in the past week stormed to a lifetime high as a result of blackouts in South Africa, home to many of the world's largest gold and platinum mines.
The ability of localized power crises to roil the global commodity markets highlights how sensitive many tight markets are to production hiccups. Developing economies with an escalating hunger for power are having to ration it between the general population and increasingly active industrial sectors.
Platinum prices on the New York Mercantile Exchange rose to records, with the nearby January contract rising as high as $1,693.80 an ounce before settling at $1,680.70, up $65.80. Most-active April gained $67.10 to $1,680.10 and hit a life-of-contract high of $1,694.90.
Prices of the precious metal, whose applications range from car- exhaust systems to jewelry, are roughly 40% higher than a year ago, and have doubled since 2004.
On Friday, the world's three largest platinum producers -- Anglo Platinum Ltd., Impala Platinum Holdings Ltd. and Lonmin PLC -- halted some or all production in response to the severe power shortages in the country. On Thursday, Eskom Holdings, the state power utility generating 95% of the electricity used in South Africa, told the miners that it couldn't guarantee power supply as a result of an "unprecedented level of imbalance."
"2006 may have been the peak year of platinum production for a while," Brad Mills, Lonmin's chief executive, told analysts in a call Thursday.
South Africa's power woes also sent gold up slightly to $910.50 an ounce, another record close, and up 3.4% for the week, as major gold miners there have suspended some operations.
Electricity shortages have also hit other big commodity-producing countries. Aluminum Corp. of China Ltd., also known as Chalco, the world's second-largest aluminum maker, said two of its smelters in southwestern China have been temporarily closed this week as a result of power shortfalls. That helped push up aluminum prices on the London Metal Exchange by 2.6% yesterday and 3.2% for the week, to close Friday at $2,518 a metric ton.
And mining industry officials in Zambia, a major copper producer, warned that its 2008 copper output could be hurt by power rationing and a halt in operations at some mines.
Already, South African mines have been struggling to maintain output amid strikes, fatal accidents and sporadic blackouts. The country's economy has recently been growing at an annual rate of 5%. The situation worsened this month as Eskom has conducted plant maintenance and heavy rains have soaked coal stockpiles.
The shutdown could lower profits for miners and jolt other industries, said analyst Matthew Turner of metals consultancy VM Group. "Auto makers will also have to pay more, and are likely to intensify efforts to cut platinum usage and switch to palladium where possible." Price gains could also spill over into the jewelry market, he said.
"When I was there last week, our office was anywhere from one hour to two hours with no power, the street lights were all out, and the city traffic was in chaos," said R. Michael Jones, president of Platinum Group Metals, a Canadian company that is developing a mine with Anglo Platinum.
Trevor Raymond, Anglo's spokesman, said that the company has been speaking with the regulator, and that hopefully by Sunday it will know whether it can resume normal production on Monday. Eskom said on its Web site that it expects the crisis "will prevail for two to four weeks."
In other commodities markets:
CRUDE: Crude-oil futures rose to a one-week high Friday, logging their first two-session rally for the year as concern that the U.S. economy is headed for recession diminished. Light, sweet crude for March delivery on the New York Mercantile Exchange rose $1.30 to $90.71 a barrel.
OPTIONAL CUTS: Chicago Board of Trade wheat rose 24 cents to $9.33 per bushel, down 29.50 cents on the week. Kansas City Board of Trade March wheat gained 15 cents to $9.70, down 41.25 cents on the week.
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Jeffrey Sparshott, Robb M. Stewart and Melanie Burton contributed to this article.
