Industrial firms, Wall Street hedge funds, and any big money investing in platinum anxiously await Johnson Matthey’s semi-annual review of the platinum industry – and they got incredibly interesting reading in the group’s most recent report, released Tuesday.
In its Platinum 2013 Interim Review, Johnson Matthey said the platinum market this year is moving toward a supply and demand deficit of 605,000 ounces – the largest deficit since 1999. That’s up from a 340,000-ounce shortfall in 2012.
It said that gross demand for the precious metal could hit a record 8.42 million ounces in 2013, up 4.2% from last year.
This spike in demand is occurring as supplies from South Africa, the world’s biggest producer, hit their lowest levels (about 4.1 million ounces) in 12 years due to continuing labor unrest in the country. South Africa produces about 75% of the world’s platinum.
Three Reasons Driving Record-High Platinum Demand
The real story behind this price-pushing deficit is on the demand side. Johnson Matthey pointed to several key factors behind the rise in demand:
Reason #1 is growing industrial demand, mainly in catalytic converters for vehicles.
Sales of cars and light vehicles are expected to hit 87.2 million units in 2014, according to British research firm LMC Automotive.
Increased auto sales will be driven by new emissions standards in Europe and continued growth in China. The Chinese auto market is expected to hit the 31 million mark by 2018, according to Money Morning Global Resources Specialist Peter Krauth.
Reason #2 involves China and the growing demand there for platinum jewelry.
Bling is an important end use for platinum, accounting for 35% of overall demand.
Chinese jewelry demand today accounts for 25% of global platinum demand, ETF Securities wrote in a recent research note.
In the past five years alone, Chinese demand for platinum jewelry has doubled. That demand now makes up 80% of global demand for platinum jewelry.
Jewelry demand will keep rising as China’s middle-class income grows. The country’s private-sector wages rose 14% in 2012.
For Reason #3, we go back to South Africa…
South Africa is experiencing surging investment demand.
In South Africa this past April, a new physically backed platinum exchange-traded fund (NewPlat) was issued by Absa Bank.
It quickly became a roaring success and the world’s biggest platinum ETF. By the end of September, it had already accumulated 659,000 ounces of the metal.
In only a few months, it had passed up the previous largest platinum-backed ETF. This is the ETFS Physical Platinum Shares (NYSE Arca: PPLT), which holds about 552,000 ounces of platinum.
Why such hunger for a platinum ETF in South Africa?
First, it is an investment all South Africans understand. The industry has been a staple in the country since the metal was discovered in the Bushveld in 1906.
It is also a great hedge for the average citizen against the country’s political and economic turmoil. The South African rand has been among the poorest performing of the emerging market currencies for several years now.
Investing in Platinum Today
To profit from this surging platinum demand, here are some plays to make now.
Investors could buy platinum-producing companies, but most of them lie embroiled in the midst of South Africa’s labor troubles. So your best bet is to stick to those physically backed platinum ETFs.
At the top of that list is the aforementioned PPLT issued by ETF Securities. It holds bullion bars in vaults located in London and Zurich and charges an annual management fee of 0.60%.
ETF Securities also offers another ETF called the ETFS Physical White Metals Basket (NYSE Arca: WITE). It has similar structure and fees but has about 35% in platinum, 15% in palladium, and the other 50% in silver.
Another good choice for investors is the Sprott Physical Platinum and Palladium Trust (NYSE Arca: SPPP). This exchange-traded vehicle holds physical platinum and palladium bullion in Canadian vaults and charges an annual management fee of 0.50% and an administration fee of 0.35%.
As of Nov. 13, the Trust held 81,905 ounces of platinum and 187,054 ounces of palladium.
Unlike the other ETFs, SPPP offers investors the ability to exchange their units for actual physical bullion. This is subject to a minimum of 25,000 units.
As our resources expert Peter Krauth told Money Morning members last week, investing in “out of print” assets like precious metals is especially important today, when central bankers keep turning to the printing presses. Platinum is just one option; here’s another metal that could double your money.
- Financial Times:
ETF Demand Sends Platinum to Big Deficit
Platinum Shortages Extending as Car Sales Quicken
- ETF Trends:
China’s Desire for Bling Could Lift Platinum
- eNews Channel Africa:
South Africa’s Platinum Output Hits 12-Year Low
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