Platinum ETF Speculation Continues to Circulate
By Viwe Tlaleane and Charlotte Matthews
15 Nov 2006 at 10:36 AM EST
resourceinvestor.com
JOHANNESBURG (Business Day) -- The success of gold and silver exchange-traded funds (ETFs) has prompted increasing speculation that they could be followed by platinum or palladium ETFs. ETFs are a derivative product underpinned by physical metal holdings that track the price of those metals and are aimed at investors looking to add diversity to their portfolios.
Whether they add stability or instability to those markets, though, is a matter of debate. The psychology of investors is as predictable as the sudden moods of a herd of buffalo.
Asked about the prospects of a platinum ETF, Johnson Matthey GM for market research Tom Kendall said yesterday that it would be more difficult to introduce than a gold or silver ETF.
“There’s been a lot of speculation and rumour about that, and in today’s commodity climate you wouldn’t rule out an ETF or a similar product in anything really - but I think it’s going to be a lot harder to structure an ETF in platinum than it was in gold or silver,” he said.
The market for platinum was smaller and less liquid than the market for gold and there would be considerable resistance on the part of industrial users, especially the automotive industry, to the concept.
He also doubted whether it would attract much support from the South African producers, and probably from the major end-users like the auto industry in North America and elsewhere. It would have to be launched from outside the industry. There could also be a problem sourcing the physical stocks needed to underpin the ETF.
Still, nothing was impossible, and if a financial institution perceived that there was a margin to be made, it could happen, Kendall said.
The number of regulations in North America made it more likely that it would be launched from London or Zurich, which were the biggest investment markets.
Johnson Matthey released its latest platinum market review yesterday and said the price of platinum could “easily” return to $1,200/oz in the next six months while the price of palladium could reach as high as $380/oz.
Platinum and palladium prices are highly relevant to the South African economy because South Africa is the world’s biggest platinum producer and the second-biggest producer of palladium.
Kendall said demand for platinum was expected to rise 5% this year to a record 7.02 million ounces, while supply would be 7 million ounces exactly, indicating the market was almost in balance.
The biggest demand came from the motor vehicle sector, which uses autocatalysts to reduce emissions harmful to the environment. In Europe, sales of diesel vehicles, which require autocatalytic converters, were expected to account for more than half of the total vehicle market. In North America catalysts were being fitted to both light and heavy-duty diesel trucks.
The strength of the sector demand was being slightly offset, however, by a decline in demand from the jewellery sector, especially in China, because of high platinum prices in the first half of the year and price volatility. Demand from industrial users would increase slightly, mainly because more platinum was being used in electronic applications.
The supply of platinum would rise by 315,000oz this year as a result of expansion in mining and processing capacity in South Africa. Supply would also rise to meet demand next year, mainly because of capacity expansion in South Africa at major producers Anglo Platinum [JSE:AMS], Impala Platinum [JSE:IMP] and Lonmin [LSE:LMI].
Asked whether growth of South African platinum supply could “overwhelm” demand in the next three to four years, Kendall said this was highly unlikely in view of rising autocatalyst and jewellery demand. If the platinum price fell to about $1000/oz, there would be a surge in demand from jewellery and industrial users.
Demand for palladium was expected to fall by about 6% to 6.85-million ounces this year while supply would rise 1% to 8.48-million ounces. The biggest source of demand for palladium is also the autocatalyst industry, where palladium is increasingly replacing platinum in catalysts for petrol vehicles in North America and Japan.
But demand for palladium jewellery was expected to weaken after strong demand last year. This was mainly because of Chinese consumers upgrading to 99%-pure palladium jewellery from the 95% pure palladium jewellery that initially dominated the market. Consumers were being encouraged to return the lower-purity product for recycling.
Johnson Matthey said demand from the dental and electronics industries for palladium would be relatively flat this year.
The supply of palladium would increase as a result of expansion in South African mines, increased output in North America and sales of about 1-million ounces of Russian state stocks, Kendall said.
Even if Russia did not sell such a large quantity, the palladium market would still be in surplus this year.
Despite the surplus, the palladium price rose faster than platinum between January and September because investment funds still appeared to hold the view that palladium was undervalued. With Classic Business Day. |
