The South African Platinum Mining Industry Economics Essay

The job here is that due to the little sizes of the tunnels, capital can non be substituted for expensive labor MineWeb, Lawrence Williams, and hence providers are stuck between a stone and a difficult topographic point. The severely thought out actions of the labor will ensue in South African Pt manufacturers cut downing supply by cutting shafts over the long-run, which will in bend lead to an addition in monetary values. As portion of my analysis, I will look at short-term supply and demand curves for labor and merchandises.

In order to make my analysis of the supply and demand curves, I foremost need to find the market construction of the Pt market. In contrast to what economic experts normally believe, I would wish to turn out that it is in fact competitory because Pt manufacturers produce a homogenous merchandise, they are monetary value takers, with their actions non being able to significantly impact monetary value, and there are replacements such as Pd available. Besides, companies such as Royal Bafokeng Platinum ( Royal Bafokeng Platinum, 2011 one-year study ) , with merely one operational mine, are able to vie and hold entered the market late.

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I have included a chart below, in which supply, demand, and mean annual monetary value are reflected between 2002 and 2011 ( Platinum Matthey and Kitco ) . I have calculated the correlativity between motion in monetary value and between supply ( correlativity of -0.22 ) and so demand ( correlativity of 0.73 ) . While I understand that there are deficient informations points, I believe it paints a clear and unexpected image. It hence follows that there is a much greater correlativity between demand and monetary value, than there is between supply and monetary value. One would anticipate the opposite if supply affected monetary value. This is chiefly because supply can non be decreased significantly in the short-term due to labor costs in South Africa being seen fixed costs as a consequence of labour statute law. Platinum manufacturers have therefore with the exclusion of 2008, where there was a decrease in supply by shuting shafts, maintained a degree of production stopping point to full capacity.

Figure: Platinum supply vs demand vs mean annual monetary value ( beginning: Platinum Matthey and Kitco )

Another ground that Pt is a competitory market is because demand for Pt is reasonably elastic because consumers are able to replace Pt with Pd, which while besides concentrated in a few states, means that Pt can non go on above a certain monetary value. I will for the remainder of the analysis assume that the Pt market is competitory and would respond to alterations in market variables as if it were de facto absolutely competitory.

In my analysis, I would wish to concentrate on consequences of recent actions by labor. I will utilize the short-term supply and demand curves for the proviso of labor and for the merchandise. I believe that this is the best manner in which one can intuitively convey the message about the true effects of the unprotected work stoppages in the Pt market.

The consequence of the work stoppages in South Africa, and the incorporate nature of them is that the overall minimal pay, even though it was non set by the authorities, has increased from We to Wu and has resulted in employment traveling down from L1 to L2, while the supply of labour moves from L1 to L3 over the short-run, making an extra sum of supply. It should be noted that in the long-run this will non change by reversal as rewards in South Africa are & amp ; acirc ; ˆ?sticky & A ; acirc ; ˆ™ . The work stoppages have hence benefited those that have managed to stay employed in the short-run but increases lasting unemployment in a state already coping with high unemployment of around 25 % ( FT, 18 October 2012, Rob Minto ) .

Figure: Labour market equilibrium before unprotected work stoppages

Figure: Labour market equilibrium after unprotected work stoppages

What is besides interesting about the Pt market is that South Africa provides c.80 % of the universe & A ; acirc ; ˆ™s platinum supply and hence major participants are forced to stay in the state even though the macro and micro economic sciences do non ever stack up. So their lone picks are to cut down staff, if possible, or to go forth the industry.

The industry broad pay additions will ensue in the sum able to be supplied to diminish from Q1 to Q2 as a consequence of shaft closings. This will in bend lead to the monetary value to increase from Pe to P* . This will ensue in the universe holding to pay a higher monetary value for Pt, which would potentially ensue in consumers exchanging to palladium in order to take down their costs. However, this would non go on in the short-term as auto-making procedures take clip to alter.

Figure: Merchandise supply-demand equilibrium station work stoppages

Figure: Merchandise supply-demand equilibrium prior to work stoppages

The cardinal acquisition from the analysis is that workers by striking and inquiring for rewards above the equilibrium will do greater unemployment and a higher cost of Pt for the universe. It could besides ensue in certain companies such as Anglo American drawing out of the economic system all together or companies go oning to put in research and development relating to mechanization of Pt excavation. Both of which would be damaging to current miners. The workers should ne’er bury that there are two factors that can be used in production and where there is a will, there is a manner.

To forestall this type of unprecedented scenario from go oning once more, the President of the Republic of South Africa has late announced that all private and public sector executives and functionaries should stop dead their wages for the following 12 months in solidarity with the work force. As he has realised that it is non merely the rewards of the workers that cause productiveness to diminish and industrial action, but besides the difference between those on the top and those at the underside of the corporate hierarchy. South Africans and the international community will go on to watch this infinite.



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