It was a year ago that escalating labor tensions in the country of South Africa ground its mining sector to a halt, when demands from striking workers for wage hikes were met with aggressive retaliation in the form of rubber bullets first and then very real ones, leading to a tragic collapse in the already tenuous relationship between foreign corporations and domestic labor unions. Also notably, back then collapse in production of such commodities as platinum and gold was not all that confusing for the market, and led to price surges on the realization what far lower supply means for equilibrium prices. Yet while the days of violent labor escalation appear to be back, this time the Newer Normal has established itself by representing that a drop in industrial and precious metal production is somehow price negative. In fact when it comes to commodities, everything has become a negative catalyst, very much the way every update in the equity world is positive for "values."
So since Bernanke is intent on representing the complete collapse between physical supply dynamics and spot paper prices as bearish, we anticipate a major takedown in all metals once the algos grasp that the South African violence is back on the radar screen. Reuters reports [6]that following news that the South African gold mining union demands a wage hike up to 60 [7]%, "ten striking South African miners were taken to hospital on Tuesday after being hit by rubber bullets, police said, as labor strife swells in mines and factories ahead of mid-year pay negotiations."
So much for calm negotiations.
Auto maker Mercedes-Benz said a two-day wildcat stoppage at its East London plant had ended but the National Union of Metal Workers of South Africa (NUMSA) squashed any relief with an immediate demand for a 20 percent pay rise.
"If our demands are not met we will have no option but to go to the streets," NUMSA national treasurer Mphumzi Maqungo told Reuters.
The currency extended its two-week slide after police confirmed that security guards had fired rubber bullets at stone-throwing wildcat strikers at a chrome mine near the platinum belt town of Rustenburg, 120 km (70 miles) northwest of Johannesburg.
The mining firm, Germany's Laxness, said the guards had fired rubber bullets in self-defence into the ground in front of protesters.
"Strike season" appears to have come early in South Africa this year:
Last week, the platinum firm Lonmin suffered a wildcat walkout at Marikana shortly after an unknown gunman shot dead a senior union official in a bar, and the National Union of Mineworkers said it would push for a pay rise of a staggering 60 percent for some categories of miner.
South Africa's car makers saw minor labor disruptions in 2012 but investors fear a repeat of the wage-related strikes that crippled the sector in 2010 as the economy was struggling to emerge from recession.
Car industry bosses said they would not entertain NUMSA's latest demands, setting the stage for a showdown when a three-year wage deal worth around 10 percent a year expires at the end of next month.
"It is common cause that the employers will not settle at 20 percent," said Thapelo Molapo, chairman of the Automobile Manufacturing Employers' Organisation.
Ironically, the local instability has translated into a plunge in the local currency which recently printed at 9.50 to the dollar, the weakest since early 2009, and with the slide accelerating another 6% in the past two weeks, inflation in South Africa is set to accelerate even more, pushing for even higher wage demands, which will be met with even more hostility and resistance out of local foreign companies.
"There is no way people are going to carry on putting their money in here when there are impending strikes in one of the biggest sectors in South Africa," said Kyle Dutton, a broker at Mercato Financial Services in Johannesburg.
While for now it is the automotive sector that has seen the bulk of the wage "negotiations", expect this to spill over to all other industries, and specifically the critical mining sector, where South Africa is a sizable producer for both platinum and gold. We can't wait to see just how the spin machine justifies the halt of their production with more double digit drop in gold and/or silver, both of which are now trading with the forced credibility of pennystocks, and where 10% daily trade ranges are the real new normal.