Platinum and palladium were once best-known for their role in cleaning up emissions, thanks to their use in catalytic converters. A pair of new funds from ETF Securities has thrust them into a newer spotlight: platinum and palladium as investments. These physically-backed funds, which are a first in the United States, have left millions of investors with platinum on the brain.
Try this on for size: before ETFS Physical Platinum (NYSEArca: PPLT) and ETFS Physical Palladium (NYSEArca: PALL) came to market, investment demand was low. Now, investment demand accounts for approximately 11% of total platinum market demand.
Other key drivers of platinum’s price are demand in jewelry – platinum is an especially popular metal used in engagement and wedding rings – and in catalytic converters, which are in more demand than ever as a result of the fight against climate change. [How Metals ETFs Changed Investing.]
But one of the biggest concerns of the market is the issue of supply.
This year the platinum market is likely to enter into a deficit. “Demand is increasing – jewelry demand, autocat demand and investment demand – and the supply has not increased in comparison,” says Shamim Mansoor, head of precious metals sales at ETF Securities. [3 ETF Trends Being Spotted Right Now.]
One of the biggest factors affecting supply is the state of mines in the world’s biggest platinum producer: South Africa. Three-quarters of the world’s platinum is mined in this country and costs there are rising fast. Labor costs have increased by more than double the rate of inflation and oil prices, another component of cost, are going up, too.
But it’s South Africa’s notorious problems with its power producers that really throw a wrench into the machinery. The cost of electricity went up 25% this year with a further 26% in 2011 and 27% in 2012.