At the Brics summit in Durban in March, the host nation--home of the most valuable mineral reserves in the world worth $2.5 trillion (R23 trillion) according to a 2010 Citibank report--was naturally looking to forward the development of this vital sector.
An unanticipated development to this end was the signing on the 26th March of a Memorandum of Understanding (MOU) between South Africa and Russia regarding Platinum Group Metals (PGMs). The agreement sets out a framework for cooperation towards seeking and creating new markets and coordinating policy between the two countries that dominate the sector, with fuller details to be agreed at a later date.
Sergey Donskoy, Russia's Minister of Natural Resources, told Reuters, "The main goal we have set for ourselves is the formation and search for new markets and, accordingly, coordinate our efforts so that we can jointly ensure maximally effective sales of raw materials on the market and implement new projects to process those raw materials."
This is a surprising move by the two governments, one that may alarm buyers, but that may transform the industry. However, the two governments' ability to manage the market effectively will not be easy and the devil will be in the yet-to-be-decided detail.
Both nations were keen to stress that price manipulation was not the MOU's aim. South African Mines Minister Susan Shabangu said, "The issue of pricing has not been discussed." Her Russian counterpart Donskoy said, "We do not plan to influence prices. We do everything in line with WTO (World Trade Organisation) rules." Minister Shabangu emphasises that the two countries were not trying to create a cartel but instead were seeking to "influence" rather than control the market. Both ministers' remarks appear disingenuous.
This is particularly so in light of Donskoy's remark to Bloomberg that "it can be called an OPEC". The oil producers' cartel lowers or raises production quotas to adjust prices. "Our goal is to coordinate our actions accordingly to expand the markets. The price depends on the structure of the market, and we will form the structure of the market," he added - suggesting that price is very much a concern. He elaborated that such coordination could be expected to involve managing supply as well as through measures such as export controls and quotas.
There do not appear to be legal barriers to the creation of a cartel-like organisation but specific acts that result, such...