Gold and platinum prices hit record levels for a third successive session yesterday as mining companies in South Africa tried to restore output following the power supply crisis that has caused widespread disruption to production.
Platinum slipped 1.7 per cent to $1,690 a troy ounce after hitting a record high of $1,735.
Gold eased 0.1 per cent to $926.30 a troy ounce on the day after hitting a record $933.10 earlier in the session.
Eskom said electricity supplies to mining companies would improve this week but South Africa’s state power company is expected to start rationing power to customers as early as March.
“The clear risk is that there will be more and more supply disruptions and, given South Africa’s complex mining sector and renewed focus on worker safety, this promises further disruptions in ore extraction and processing,” said Michael Jansen of JP Morgan. Mr Jansen expects gold to peak at between $950 and $975 an ounce but said the risk of a move through the $1,000 level remained acute. JPMorgan is forecasting that gold will average $914 this year and experience only a modest decline next year, averaging $845 in 2009.
Base metals found support from disruptions in the Chinese metals sector amid reports that up to a 10th of China’s smelting capacity has been brought to a standstill by power shortages and severe winter weather.
Copper rose 3.4 per cent to $7,297.5 a tonne. Zinc added 3.3 per cent at $2,365 a tonne. Lead gained 3.2 per cent at $2,750 a tonne.
Some Chinese aluminium smelters have already announced production cuts due to power interruptions. Others are expected to follow. With the lunar new year holidays approaching, production in some sectors is unlikely to be restored before mid-February.
Aluminium jumped 5.2 per cent to $2,642.5 a tonne while nickel added 3 per cent at $27.800 a tonne.
Tin added 2.4 per cent at $16,900 a tonne, finding additional support from news that Indonesia’s second largest producer, Koba Tin, will be forced to end smelting operations on the island of Banka pending an investigation into illegal mining activities.
Costanza Jacazio of Barclays Capital said the disruptions from extreme cold weather in China could have substantial repercussions for oil and base metals markets. China’s imports of diesel surged to a record high in December and incremental demand is likely to be bolstered as oil-fired back-up generators are brought back into operation.
Oil prices rose ahead of Opec’s meeting in Vienna on Friday.
Nymex March West Texas Intermediate was up 65 cents to $91.64 a barrel, while ICE March Brent moved 62 cents higher to $92 a barrel.
Traders’ attention today turns to the latest US weekly inventories data. A preliminary poll of analysts by Reuters suggested crude stocks rose 2.1m barrels last week, helped by a recovery in imports and a small decline in refinery utilisation as seasonal maintenance programmes continue.
Colder temperatures in the US north-east were expected to contribute to a 1.9m barrels fall in distillate inventories (including heating oil). Nymex February heating oil was fractionally weaker at $2.5245 a gallon.
Gasoline stocks were forecast to have risen 2m barrels, a twelfth consecutive weekly rise. Nymex February RBOB unleaded gasoline slipped 1.1 cents at $2.3140 a gallon.
Spot gold in London rose to $929.40 a troy ounce, up from $929.20 on Monday, on fresh Asia speculative buying. Physical demand from the jewellery industry was, however, stagnant, precious metal traders said.
Spot platinum in London hit a record high of $1,735 a troy ounce while silver surged to a fresh 27-year high of $16.76 an ounce. South Africa is the world’s largest platinum producer, accounting for nearly 80 per cent of output.
Gold prices have surged 45 per cent since January 2006 and platinum prices have risen 33 per cent in the same period.
The precious metals price gains were capped after some mines in South Africa restarted production and more were expected to follow later on the week. The mines halted output last week after the country suffered its worst power shortage in decades.
AngoloGold Ashanti, the world’s third gold mining company, said one of its seven mines in South Africa has already resumed full production and it expected others to restart on Thursday.
But other producers, including Gold Fields and Harmony and Anglo Platinum, the world’s top producer of the metal, said they were still carrying out essential maintenance, such as pumping out water from deep mines, and were unsure when production would restart.
Anglo American, the largest mining company in South Africa, said most of its operations, with the exception of coal and iron ore mining, were still shut.
The company said in a statement on Tuesday that the current crisis was having an “impact on a number of key metal markets”, adding: “The mining industry’s strategic importance to South Africa’s economic prosperity is well known.”
Mining companies are getting about 75 per cent of their normal electricity consumption, just enough to carry on maintenance works but not to restart some production. Mining executives say they need about 90 per cent to restart output.
In other commodities markets, wheat prices extended gains on strong demand from emerging countries and lower-than-expected US plantations. In Chicago, CBOT March soft wheat rose 12½ cents to $9.75½ a bushel.
Hard wheat, prized by millers and bakers for its high protein content that makes for quality flour, rose much higher. In Kansas City, March winter hard wheat rose 15 cents to $10.15 a bushel while at the Minneapolis Grain Exchange March spring wheat jumped by its 30 cents daily limit to $13.29 a bushel.
CBOT March corn rose 2 ½ cents to $5.04 ¾ a bushel.
Crude oil prices were mixed ahead of the Opec meeting on Friday in Vienna. ICE March Brent moved two higher cents $91.40 a barrel while Nymex March West Texas Intermediate was 11 cents down to $90.88 a barrel.
In early trading on the London Metal Exchange, base metals were higher with copper up 1.0 per cent to $7,155 a tonne. Aluminium rose 0.5 per cent to $2,536 a tonne.
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