www.miningmx.com | platinum Platinum producers spurn ETF plan

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Platinum producers spurn ETF plan
Allan Seccombe
Posted: Mon, 16 Apr 2007

[miningmx.com] -- A Swiss bank is launching a platinum-backed exchange-traded fund in a very tight physical market, prompting South African platinum producers to reiterate their opposition to such a scheme because of the price volatility it brings to their product.

The Zurich Cantonal Bank (ZKB), a state-run institution, said on Monday it is launching ETFs backed by physical supplies of platinum, palladium and silver. The ETFs will begin trading on the Swiss Exchange from 10 May, it said in a statement.

ZKB already has a gold-backed ETF it launched in 2006. It is now worth 460m Swiss francs.

producers do not want prices rocketing

�The market is very tight indeed and this would draw more metal off the physical market, sending prices skywards. The producers do not want prices rocketing higher,� said Bob Gilmour, investor relations manager at Impala Platinum, the world�s second-largest platinum producer.

The physical market is tiny in comparison to the vast quantities of platinum absorbed by the autocatalyst and jewellery sectors, with between 5,000 and 10,000 ounces traded in London a day, Gilmour said.

Platinum producers have offtake agreements covering 90% or more of their seven million ounces of annual production, leaving very little behind for the spot market.

Johnson Matthey forecast a small deficit of 20,000 ounces for 2006, with supply and demand both increasing in 2007 and the market staying in balance.

"We don't support an ETF for platinum. We don't believe it is an attractive addition to the market because it will further reduce liquidity of the metal in an already very tight market," said Anglo Platinum spokesman Trevor Raymond, adding the company would not contribute any metal towards it.

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The ETF has probably been launched too soon, with the platinum market expected to make a tentative foray into a surplus situation for the first time in nine years this year, said Mark Smith, a platinum analyst with RBC Capital Markets in London.

�If you look at the fundamentals, a platinum ETF is just not conducive to this market at this point,� Smith said, adding it would serve to soak up whatever small surplus had been anticipated this year.

Smith has recently completed a review of the platinum market and forecasts an 80,000 oz oversupply this year, something which is likely to be easily absorbed by an ETF.

It was not possible to reach ZKB immediately for comment on their brief statement, which sent platinum prices bounding to five-month highs above $1,270 an ounce.

The word in the market, which has proved difficult to confirm, is that the fund will account for 70,000 ounces of platinum, which is small in the greater scheme of the market, but large enough to mop up this year�s small surplus and add to market volatility.

�In the short term, this news will lead to a price spike, but result in nothing more material in the longer term,� Smith said.

�It really does need producer backing to ensure a physical supply of the metal. The producers are not supportive of platinum ETFs because it has the potential to damage jewellery demand through high prices and volatility,� he said.

Gilmour said rumours in the market in the previous six months had reckoned a large bank was to launch an ETF backed by some 500,000 oz of platinum, which would have seriously driven prices higher.

�If it�s accurate that it�s about 70,000 ounces, they might just get away with it,� he said.

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