Three of the world’s leading platinum producers in South Africa – Anglo American Platinum, Sibanye-Stillwater and Impala Platinum (Implat)- have declared ‘force majeure’ on contracts in the wake of a three-week national lockdown. This means that all contractual agreements between the companies and other parties are technically on hold due to an unexpected occurrence beyond human control, like the COVID-19 pandemic. A Force Majeure clause in contracts frees both parties from liability or obligation.
The national lockdown imposed by the government also extends to mines in the country, a move meant to curb the spread of the virus and protect its citizens. And while this measure lasts, production processes for platinum metal would be on hold and companies would not be able to meet contracted demands.
“We are unable to supply (customers) with metal because now our operations have closed down, so we will have to declare force majeure,” James Wellsted, a spokesman for Sibanye-Stillwater said in a statement.
News of the lockdown had prompted a rise in demand for platinum which further hiked its price above 20 percent last week. But if the mines keep producing when demand is low, the platinum market would be flooded with excess supplies.
Although the three-week lockdown could cause a reduction in the production of PGM for the year 2020, it would also help to buffer the negative impacts of coronavirus on the platinum market.
According to a statement by Arnold Van Graan, Equity Analyst with Nedbank, “the 21-day lockdown in South Africa, which would significantly reduce 2020 PGM production, should go a long way to offsetting the demand impact of the outbreak.”
The pandemic has drastically reduced demand for platinum from global car companies as most of them are partnering and pulling resources together with their various governments to tackle the outbreak in their countries.
As a result, the lockdown would ensure that the market is not flooded with unwanted supply while demand is low as it contributes significantly to keeping the PGM market fundamentals intact, Van Graan added.
South Africa accounts for over 70 percent of the global platinum supply. However, in recent times, most of these companies have not been operating in their full capacity due to countless bouts of power cuts that have limited output and made many businesses relocate to other nations.
The lockdown would further create more economic challenges for the country even as it seeks to tackle the coronavirus outbreak. Rating agency, Moody’s also recently downgraded South Africa’s debt rating to junk status, thereby excluding the country from the FTSE World Government Bond Index. The junk status would affect the country’s chances of borrowing from international markets and scare off many of the world’s investment funds from its bonds.
Like many other African countries, the country has shut down its airports, seaports, and borders from non-essential arrivals in an effort to contain the spread of the coronavirus, blocking the flow of the mineral resource off its borders.