Platinum Supply Deficit Seen Easing ETF Losses

ETF Trends

Platinum prices have been under pressure this year along with other precious metals. However, supply shortages could become an issue as South African mining disagreements rage on.

A new physically backed platinum exchange traded fund hit the market in April, adding to a deficit in supply, which couldsupport prices over the next few years.

“A rotational shift out of commodities and into equities also took its toll on the platinum market,” James Steel, HSBC analyst, said in recent report. “The launch of the South African ETF in mid-May has already attracted a whopping 371,000oz of platinum demand to date. This is more double the growth in the rest of the platinum ETFs combined this year,” he added. [ETF Securities: Platinum and Palladium Supply Risks Rise]

In early June platinum prices hit a high of $1,531, paralleled by the launch of  a physically-backed precious metals ETF in April. The cost of the metal was also influenced by the sharp swings in gold prices seen early on in the second quarter, reports Jenny Cosgrave  for CNBC. Platinum prices suffered a 17% loss from February highs when investors began selling off gold positions. [ETF Investors Buy Platinum, Palladium and Silver - Sell Gold]

HSBC analyst Steel recently cut his price forecast for platinum to $1,580, down from a previous $1,710 for 2013. Likewise for the year 2014, Steel cut his estimate to $1,725 from $1,800.

“If investment demand improves more than expected, the market balance could narrow further and prices could increase more rapidly,” CPM Group said on Forbes.

Platinum is in demand for several other uses besides investment and jewelry. The metal is used in auto manufacturing, electronics, and in several fabrication processes. A supply shortage will be exacerbated if more disruptions to South African mining output takes place. The mining strikes in South Africa had lowered production 16% in 2012, and has continued into 2013. South Africa alone accounts for 60% of the global platinum production. [ETF Securities: Contrarian Opportunities in Precious Metals]

“The possibility exists for further disruptions to production in South Africa. Additionally, the long-term challenges of low platinum prices make a sizable amount of current production uneconomical. This leads us to believe that higher prices are necessary to sustain production longer term, Steel said.” [More Problems Looming for South Africa ETFs]

Platinum ETFs:

  • ETFS Physical Platinum Shares (PPLT)
  • ETFS Physical White Metals Basket Shares (WITE)

ETFS Physical Platinum Shares

 

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PPLT, WITE, Commodity ETFs, Platinum, ETF

Platinum Prices Expected to Rise

 

Tisha Guerrero contributed to this article.

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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