World Cup 2010 South African

Theme Song FIFA World Cup 2010 Schedule - South African miners are confident annual platinum output will not be hit by power disruptions linked to this year's football World Cup, but there is still a risk of short-term price volatility in a sensitised market.

FIFA World Cup 2010 - And in the longer term, the fragility of the republic's power supply is set to keep production under pressure, adding another layer of support to prices which have already hit 20-month highs this year amid expectations for a rise in demand.

South African power issues have been high on the agenda of platinum traders since the last major power crisis in South Africa in early 2008 resulted in weeks of rolling blackouts and a shutdown of the mining sector.

This sent the price of platinum, four out of five ounces of which originate in South Africa, to a record $2 290 (R17 038) an ounce.

"Power is a major issue, given that South Africa is such a dominant player on the supply side," said Societe Generale analyst David Wilson. "That is a longer term issue than just this summer."

Talk abounded early this year that the republic's hosting of the football World Cup might result in power shortages to major users. South Africa has hosted large international sports tournaments, including the rugby World Cup, but the football World Cup is one of the sporting calendar's biggest events.

Power utility Eskom said it will need an extra 275 megawatts of electricity to supply the tournament, for which 2.24 million tickets have already been sold.

While both Eskom and the republic's miners say they have taken steps to address power issues linked to the event. Even minor disruptions during the peak-demand South African winter may have a disproportionate impact on prices, analysts say.

Barend Ritter, a Cape Town-based platinum analyst at Sanlam Investment Management, said power shortages are likely to hit big electricity users like miners the hardest.

"One-off events could mean a loss of a few percent in production, but in terms of sentiment, the market will take the view that there is likely to be a constraint in production, and prices will spike," he said.

Anglo Platinum, which produces nearly half global supply, is bringing forward scheduled maintenance to coincide with the Cup to lessen the impact of possible power constraints.

Number two platinum miner Impala Platinum said it would be "business as usual" during the tournament.

Analysts say the immediate impact of the event on platinum prices is likely to be limited to short-term spikes, which are unlikely to take prices back to the $2 000 level.

Miners have learnt from 2008's crisis. Many have taken steps like installing expensive but effective diesel-fuelled generators to help deal with short-term power disruptions.

VULNERABLE

But in the longer run, they are still vulnerable to problems with the republic's fragile electricity infrastructure.

The lengths miners have had to go to safeguard output during the tournament have reignited concerns over power stability.

"The World Cup is of itself not the biggest issue, but it is an interesting case study of what Eskom has to do to make sure electricity is available to users," platinum processor Johnson Matthey's publications manager David Jollie told Reuters.

Eskom said last week that South Africa's power supply is seen as a serious concern from 2011 onwards, until new power stations come on stream.

The utility was granted approval to raise electricity prices by 25 percent this year to help it build more plants, but until these are on line, fears over power supply are likely to linger. Miners may hold off investing in new projects while electricity supply is still an issue, analysts say. Platinum has one of the tightest market balances of any precious metal.

According to Johnson Matthey, it swung into a surplus of 140 000 ounces last year from a deficit of 240 000 ounces in 2008. But that was at a time when demand from automakers, who consume more than 50 percent of the metal annually, was slumping as the economic downturn bit.

With South Africa's biggest platinum miners forecasting flat production this year compared with last year, an expected rebound in demand is set to tip that balance back into deficit.

"When you do the maths, if you expect a rebound in auto catalyst demand next year, will there be enough platinum to supply that market?" Investec analyst Rebecca O'Dwyer said. "There may not be."

Current prices forecasts for platinum, collated from research notes produced by eight banks in the last month, suggest prices could average around $1 600 an ounce this year, and are likely to rise again next year to around $1 700.

While that is far from the dizzy heights the metal hit in early 2008, it is still well above last year's average price of around $1 200. With demand rising, until fears over power supply are calmed, they are unlikely to return to those levels. - Reuters