Platinum ETF: Lower Capex to Weigh on South African Supply | ETF Trends

The platinum exchange traded fund could outshine other precious metals over the next few years as a sharp drop off in capital investments could begin to weigh on supply.

The ETFS Physical Platinum Shares (NYSEArca: PPLT) has increased 3.9% over the past month but is still down 18.0% year-to-date. PPLT is currently testing its 50-day short-term trend line.

Platinum prices are now hovering slightly above $1,000 per ounce.

The white metal could strengthen ahead on an expected decline in output. According to the World Platinum Investment Council, South Africa, the largest producer of platinum and home to about 80% of the world’s proven platinum reserves, has experienced a precipitous fall in platinum investments from an annual $3 billion in 2008 to $1 billion in 2015, reports Emiko Terazono for the Financial Times.

“Using capital expenditure alone as an indicator would imply that South African mining supply in 2016 and 2017 will be noticeably lower than 2015 levels and would support ongoing deficits in the platinum supply-demand balance,” Paul Wilson, WPIC’s chief executive, told the Financial Times.

The lower supply outlook should help turn around the price of platinum, which is used in autocatalysis to diminish pollutants from automobiles and in jewelry, after touching a six-year low in August.

Industry observers also believe that platinum companies have overextended operations during the commodities boom in prior years and have suffered from an oversupplied market as a result.

More recently, the precious metal has been under pressure from falling demand, especially as economic problems in Europe weigh on industrial demand, along with lower jewelry demand. Nevertheless, demand is expected to pick up by 4% to 8.4 million ounces due to platinum bar purchases from Japanese investors, buying of ETFs in South Africa and autocatalysts, which is predicted to rise 5% to 3.4 million ounces on greater automobile demand.