Bloodshed at a major South African mine has already sent platinum to its highest price in 3-1/2 months and signs of the turf war between unions spreading look set to lift it further as investors refocus on supply risks rather than feeble demand.
But any price gains are unlikely to be of much help to beleaguered platinum mining companies that are struggling to reconcile opposing pressures to improve employment terms while dealing with a sharp drop in demand, which forced prices below the cost of production.
Economic weakness this year has eroded demand for platinum, used in jewellery and autocatalysts, leaving the metal facing an anticipated overhang of as much as 6.5 per cent of total demand this year, its biggest in 10 years. Prices since early May had languished around levels last seen at the start of the year.
This changed after 44 people - of whom 34 were shot by police last week - died at Lonmin's Marikana mine due to clashes between the National Union of Mineworkers (NUM) and the breakaway Association of Mineworkers and Construction Union (AMCU), which now threaten to spread to other operations.
Swiss bank UBS said the situation in South Africa could take weeks to resolve. It estimated a loss of platinum production from the unrest of up to around 70,000 ounces, and flagged potential for trouble to spread to bigger producers.
"This still would not clear out the 210,000 ounces expected surplus we estimate for the year," UBS analyst Edel Tully said.
"But platinum is also pricing in the increasing likelihood of contagion, with market focus now shifting to (the world's biggest miner) Anglo American Platinum the only major producer that has not yet been affected by union rivalry issues this year."
Roughly 80 per cent of the world's platinum comes from South Africa and most supply disruptions tend to result in a knee-jerk reaction from the markets. In 2008, fears of powercuts in the republic sparked a price rally to record highs at $2,290.
Platinum is now trading up nearly 9 per cent so far this year at $1,514 an ounce, compared with a 3 per cent rise in gold. Prior to the Lonmin clashes, it had been below $1,400 an ounce, close to its lowest this year.
The metal fell more than 20 per cent in 2011 as the European debt crisis strangled consumer spending and demand for motor vehicles, in which it is used in the catalytic converters that clean exhaust emissions.
The European car market favours diesel vehicles, which use a higher loading of platinum than petrol engines preferred elsewhere.
Analysts in Europe are forecasting a surplus this year of anywhere between 100,000 and 400,000 ounces, largely because of flagging European car buying. Europe's automakers accounted for more than 1 million ounces of demand last year.
The weight of surplus metal has not been lost on investors in U.S. platinum futures, who have so far this year driven bearish bets against their price to record highs, according to data from the Commodity Futures Trading Commission.
The poor demand picture has offset other bad news from South Africa this year, including a strike at Impala Platinum and supply cuts from Aquarius Platinum this year.
"As soon as you have anything bad coming out of Europe as regards the economic outlook, that can negate whatever South Africa put out with regards to supply scare," Neal Meader, research director for precious metals at GFMS, said.
"That's one reason why we've seen relative stalemate - it's a battle between those two forces."
For now, buyers are watching for any signs the violence at Lonmin will spread. The NUM said on Wednesday that miners at Royal Bafokeng Platinum's Rasimone mine were blocked from going to work by colleagues, in a further sign of labour troubles in the sector.
And Anglo American Platinum, known as Amplats, said on Wednesday it had received a wage increase demand from workers at a South African mine.
Members of the AMCU union clashed with NUM members back in February at Impala, leaving three dead and dozens injured. It said then it already represented most of Impala's unionised workforce, with over 15,000 at the Rustenburg facility alone, and in June said it was recruiting at Amplats.
Impala's Rustenburg mine produces around 900,000 ounces a year, while world number 3 producer Lonmin's Marikana accounts for around 700,000 ounces. Amplats mines over 2 million ounces a year in South Africa.
Rising power and labour costs and a steep decline this year in prices had already left many South African mines struggling to stay afloat, and a series of stoppages related to industrial action and safety issues have cut total output this year.
"With the number of PGM (platinum group metal) mines declaring cutbacks of some sort or another, the view is that the market has definitely found a floor," Sharps Pixley chief executive Ross Norman said.
"It remains to be seen whether the strikes and the violence will spread," he said. "You've got to return to supply/demand dynamics and at the moment, between demand and supply, it is going to depend on which gets the bigger headlines."