Sunday, December 2, 2007

ETFs Fail Spur Platinum & Palladium

Platinum ETF unlikely for New York

David McKayPosted: Thu, 29 Nov 2007
[] -- INVESTORS interested in the fortunes of platinum mining companies such as Anglo Platinum and Impala Platinum may be interested to know two exchange traded funds (ETFs) backed by platinum and palladium have failed to ignite the market.
The ETFs were introduced in April and May after much speculation and controversy. Platinum producers were generally hostile to the products because, in the words of one analyst, they stood to artificially create selling and buying pressure.
When metal prices are good, platinum-backed ETFs have the potential to create more demand and extra tightness in a market than might otherwise exist; the reverse happens when metal prices are weaker.
The extra volatility they create would be bad news for the jewellery market which could suffer as a result. In the minds of producers, fickle ETF demand should not damage long-term, permanent jewellery demand.
That however, doesn’t look likely and the price of platinum will be a less volatile than had the ETFs succeeded. That’s good news for producers because it makes planning easier; the future more stable.
According to Johnson Matthey (JM), the UK-based precious metals refiner, demand for platinum and palladium by ETF products – of which two in each metal were launched – totalled no more than 60,000 oz of platinum and 255,000 oz of palladium this year. The funds were intended to contain a combined 150,000 oz of platinum and 400,000 oz of palladium.
“In fact, volumes of purchases in all funds have been relatively low post-launch and we have even seen some redemptions of metal,” said JM in its interim report published in November.
However, there has been talk of a platinum-backed ETF being launched in New York where appetite for such a product might be much greater than in other financial centres. It is thought New York was the wings behind gold-backed EFTs. But again, JM thinks this unlikely, at least for the next 12 months.
“There just isn’t the supply for platinum ETFs to grow,” he says. Palladium backed ETFs would have Russian metal inventories to draw from, but even these are unknown in size and finite. By contrast, there’s an estimated 33.000 tonnes of above-ground gold supplies that could feed into ETF products.
And the situation isn’t going to improve much for the platinum industry either.
Both Lonmin and Anglo Platinum have announced lower than expected production levels this year, owing to a host of factors, some of them technical. Moreover, JM reckons metal proudction from new projects will be slower than expected.

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