[miningmx.com] – INTEREST in the Newplat platinum exchange traded fund (ETF) continues at a fair clip. At the time of writing, total holdings stood at 503,613 ounces following a very healthy and hefty 76,000 ounce in-flow during the first week of July.
To put that in perspective, South African platinum production averaged only 79,000 ounces during 2012, according to Macquarie Research. Its popularity was described as “remarkable’ by the bank given the location of the fund and that it was only launched in late April. Yet the bank is nervous.
“It is not so much that we expect the holdings to be liquidated any time soon – the investor base is largely institutional investors such as pension funds with presumably a long-term horizon,’ said Macquarie. “It is simply that the inflows surely will not continue at this rate, and the platinum price has been weak enough despite them,’ it said.
It’s a fair point. An analyst at Stanlib – Sholto Dolamo – makes a similar point. “The platinum market must be very over-supplied as the price has not responded,’ he says.
Vladimir Nedelkjovic, head of EFTs and index products at Absa Capital which originated NewPlat and its predecessor, NewGold, says he expected strong demand for the product but he was surprised by “the speed with which this happened’.
“We’re quite positive on future demand as we’re seeing institutions driving the demand [Macquarie said that Eskom pension funds number among clients] and at levels that they feel is attractive to them,’ he says.
There’s also scope for international buying as NewPlat is cheaper than offshore products. “We offer NewPlat at 40 basis points against the 49 to 60 basis points overseas. But it also depends on the rand as international investors will be exposed to the rand/dollar changes,’ Nedeljkovic says.
Dolamo, meanwhile, sees the beginning of a disconnect in the performance of platinum equities and the platinum price similar to events in the Eighties in which gold shares failed to reflect the strength of the metal.
“Perhaps the saving grace of the South African platinum market is that fact that 80% of the platinum and rhodium is only found in South Africa,’ says Dolamo. That’s not the case with gold where South Africa has become the sixth largest producer behind Australia and China.
Substitution of platinum with metals that don’t introduce a sovereign risk in their production may yet prove the undoing of the South African platinum market, but technology hasn’t currently provided a major alternative to platinum in the manufacture of autocatalysts.
