When South Africa's Lights Went Out and Platinum Went Crazy

Imagine you control 80% of the world’s supply of a precious metal. And then one day your electricity just stops working. Chapter 29 of Torsten Dennin’s “From Tulips to Bitcoins” tells the story of South Africa’s platinum industry getting hit by the most basic problem imaginable: no power.

Two Years Before the World Cup

It was spring 2008. South Africa was supposed to be getting ready for the 2010 FIFA World Cup. Instead, the government had to declare an energy emergency. The country was facing its worst electricity crisis in decades.

Eskom, the largest electricity provider in Africa, started shutting off power for hours every day. Not for a day or two. For weeks. People in Johannesburg and the Gauteng region were sitting in the dark for two to three hours at a time, every single day.

How did this happen? Simple math that nobody in charge bothered to do. Since the end of apartheid in 1994, electricity demand in South Africa had risen by 50%. Fifty percent. But the government and Eskom did not build enough new power plants to match that growth. They just kept running the old ones harder and harder until the whole system could not take it anymore.

Then the weather made things worse. At the end of January 2008, heavy rainfall soaked the coal reserves at Kendal power station. Kendal is the world’s largest coal-fired power plant. When your coal gets wet, it does not burn very well. So the biggest power plant on the continent was suddenly struggling to produce electricity.

Why This Hit Mining So Hard

South Africa’s Gauteng region is the center of the country’s gold and platinum mining industry. And mining needs a lot of electricity. Not just for digging. Half of the energy that mining companies consume goes to basic infrastructure: pumping water out of deep mine shafts, pumping fresh oxygen down to where the miners work.

When the power goes out in a deep mine, you cannot just send people back in when it comes back on. The water rises. The air goes bad. You have to pump everything out again and make it safe before anyone can return. Every blackout is not just lost hours. It is a safety hazard and a restart problem.

The Miners’ Union reported that tens of thousands of workers were sent home. Not laid off permanently. Just told to go home because there was literally no electricity to run the mines.

80% of the World’s Platinum

Here is why the rest of the world cared about South Africa’s electricity problems.

South Africa produces about 80% of the world’s platinum. Most of it comes from a geological formation called the Bushveld complex. If you add Russia’s production, those two countries together account for roughly 90% of global platinum supply. That is an extreme level of concentration.

Platinum is not just for expensive jewelry, though that is 25% of demand. About half of all platinum goes into catalytic converters for cars. Those are the devices in your exhaust system that reduce toxic emissions. Johnson Matthey, the world market leader in auto catalysts, was already expecting falling platinum shipments for the first time in seven years even before the crisis hit.

The platinum group metals are six elements: platinum, palladium, rhodium, iridium, osmium, and ruthenium. South Africa dominates production of all of them. On the mining side, the big players were Anglo American Platinum (called Amplats, with about 40% of the market), Impala Platinum (Implats), and Lonmin. In Russia, Norilsk Nickel was the main producer.

Now think about what happens when the country that supplies 80% of a critical industrial metal suddenly cannot keep its lights on.

Prices Explode

At the end of January 2008, the three largest gold producers and the largest platinum producer in South Africa all announced production cuts. They had no choice. You cannot mine without electricity.

The numbers were brutal. Amplats was losing an estimated 9,000 ounces of platinum per day. Impala was losing 3,500 ounces per day. Industry analysts started estimating the total loss for 2008 could reach half a million ounces.

Platinum prices had already been climbing steadily since mid-2005. They accelerated in late 2007 and early 2008 as the power situation deteriorated. Then when the production cuts were announced, the price jumped $100 in a single day, blasting past $1,700 per ounce.

But it did not stop there. By March 2008, platinum closed above $2,250 per ounce. An all-time record. From a metal that is mined mostly in one country that forgot to build power plants.

A Problem With No Quick Fix

The scary part was that nobody had a solution. Even after the immediate crisis was managed, the South African mining industry was still running at only 90% capacity. Experts predicted the power problems would last until at least 2020.

They were right. By 2019, Eskom was still a disaster. The company had accumulated $30 billion in debt. South Africa’s President Cyril Ramaphosa publicly called Eskom “too big to fail.” That is the same phrase Americans used about the banks during the 2008 financial crisis. When a government uses that phrase about its own electricity company, you know the situation is very bad.

South Africa had already fallen from number one to number eight in global gold production over the years. Gold mining had slowly moved elsewhere. But platinum was different. You cannot just start mining platinum in another country because the geology does not work that way. The Bushveld complex is unique. The world was stuck depending on South Africa for platinum whether it liked it or not.

The Crash After the Spike

Here is the part that makes this a classic commodity story. That record price of $2,250 per ounce in March 2008 did not last. By 2019, platinum was trading around $800 per ounce. Less than a third of its peak.

What happened? The global financial crisis hit later in 2008 and crushed demand for cars, which meant less demand for catalytic converters. The jewelry market slowed down. And slowly, over years, automakers started substituting palladium for platinum in some catalysts. When a commodity gets expensive enough, people find alternatives. They always do.

So the electricity crisis created a spectacular price spike. But the spike itself planted the seeds of lower demand in the future. Markets have a way of correcting things, even if it takes a decade.

What Stays With Me

Dennin uses this chapter to show something I keep seeing throughout this book. The biggest price moves in commodities are almost never caused by demand suddenly increasing. They are caused by supply suddenly disappearing.

South Africa did not run out of platinum. The platinum was still sitting in the ground. The mines were still there. The workers were still there. But without electricity, none of it mattered. A supply chain is only as strong as its weakest link, and in this case the weakest link was the most basic utility that modern civilization depends on: electric power.

The concentration of supply is the real lesson here. When 80% of any critical material comes from one country, you are one infrastructure failure away from a global crisis. It does not take a war or a revolution. It just takes a government that did not plan for growing electricity demand. That is all it took to send platinum to an all-time high.

And then eleven years later, Eskom was still broken, still in debt, still “too big to fail.” Some problems do not get solved. They just become permanent features of the landscape.

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