Managing director of ETF Securities, issuer of the physically backed platinum ETF ‘PPLT,’ discusses the platinum and palladium markets.
William Rhind is managing director of ETF Securities, a leading independent provider of ETFs. The firm, which in 2003 pioneered the world’s first physical gold ETF in Australia, has launched seven physically backed precious metals ETFs in the U.S. Those include the ETFS Physical Platinum Shares (NYSE Arca: PPLT), with more than $800 million in assets under management. HAI Managing Editor Sumit Roy spoke with Rhind to discuss the platinum and palladium markets.
HardAssetsInvestor: How would you characterize platinum and palladium fundamentals right now?
William Rhind: For both, the fundamentals are strong. We’re in a structural supply deficit for both metals currently, and based on current consensus, that’s expected to continue for the rest of this year.
The key risk is the labor dispute situation in South Africa. If there is no material resolution of that or it involves shuttering mines, then that could exacerbate the supply situation further and lead to an even bigger deficit.
HAI: Is the deficit in the platinum market all supply-related or is there a demand component as well?
Rhind: It’s a combination of demand—which has recovered significantly from the depths of the financial crisis, particularly driven by stronger auto sales globally—and supply. The supply story is really about the producers, and the fact that arguably 70 percent of the platinum mines currently lose money or are at around breakeven in South Africa. Therefore, there’s a big need to cut costs in order to run the business more efficiently.
HAI: What’s going on with prices? After starting the year with a strong rally, prices have retreated a bit. Is it all due to the decline in gold?
Rhind: There’s been some correlation with what’s been going on in gold. But platinum and palladium have largely decoupled this year from the action in gold, and to a lesser extent, silver. What’s driving platinum and palladium prices are three major things at the moment.
First is the labor situation on the supply side—the labor disputes and the potential restructuring of production in South Africa.
The second thing is the performance of the local currency. All of these producers earn their income in South African rand. And the rand has been weakening against the dollar pretty significantly over the last month or so, leading to a lower platinum price in USD.
Finally, as far as platinum is concerned, it’s largely about the European diesel market in terms of the demand side of things. [Platinum is used in catalytic converters for diesel engines. Palladium is used for nondiesel.] For palladium, it’s about the U.S. and Chinese passenger vehicle markets [nondiesel].