Platinum ETFs Jump After Mine Strike Turns Deadly

ETF Trends

An exchange traded fund tracking platinum rose Friday in heavy trading volume following reports South African police killed 34 striking platinum miners.

South Africa’s worst labor-related violence in nearly two decades also left 78 wounded, NYTimes.com reports. President Jacob Zuma cut short his trip to neighboring Mozambique to rush to the mine, about 60 miles northwest of Johannesburg, according to the report.

“There are two things going on – the pay dispute, but also this militancy between unions,” Citigroup analyst David Wilson said in a Reuters report. “It is having an impact on sentiment towards platinum. Whether it is significantly tightening the market – at the moment, probably not. But potentially, this could have quite a long-term impact.”

ETFS Physical Platinum Shares (PPLT) is on track for a weekly gain of 5% with trading volume picking up dramatically Thursday and Friday. Other exchange traded products for the precious metal include iPath Platinum ETN (PGM) and E-TRACS Platinum ETN (PTM) .

“Although the disruption to date and probable lost output may not [yet] be sufficient to create a structural change in the market, they could generate the kind of short-covering rally seen in January and February this year, when platinum gained more than 20%,” Credit Suisse analysts said in a Barron’s report.

“Over the last few days, over 30 people have been killed in violence at Lonmin’s mines in South Africa,” said platinum ETF provider ETF Securities in a statement. “We have seen platinum gain almost $60 an ounce over the last two days alone representing a 3.9% gain in price for the metal bringing it to a 6-week high. Our platinum ETF, PPLT, has spiked to about 3 times the average daily trading volume as investors look to participate in the rally.”

Production for platinum is very concentrated with over 80% of supply coming from South Africa.

“We expect any disruptions in mine supply to have a positive effect on the price of platinum. The all time high for platinum in 2008 was a result of power supply issues to the mines in South Africa,” ETF Securities said. “We again saw a spike in price in January of this year when there was an illegal strike at the Rustenburg mine. Lonmin has publicly acknowledged that output has been severely disrupted but has not yet provided any estimates on the amount of production being lost. Any timescale of resolve at this stage is speculative although we can assume the mine will be out of production for at least the next six weeks.”

ETFS Physical Platinum Shares

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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