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.
Labor strikes could affect short-term supply from South Africa. Due to the steady decline in platinum prices, platinum producers have had to cut costs, and South African miners have expressed greater unrest, including a five-month strike last year.
The World Platinum Investment Council calculates a supply shortfall in platinum of 190,000 to 445,000 troy ounces for 2015, or half the 2014 deficit of 785,000 ounces. The total supply woulc rise by 9% this year to 7.9 million ounces due to a recovery in South African mine production from 2014 strikes.
However, Anglo American Platinum Ltd. recently stated that protest in South Africa disrupted operations at its largest and most profitable mines after locals demanded employment and provision of infrastructure, reports Andre Janse Van Vuuren for Bloomberg.
“The situation is still tense and many of the roads around the mine remain blocked,” police spokeswoman Ronel Otto told Bloomberg.
ETFS Physical Platinum Shares
For more information on the platinum market, visit our platinum category.
Max Chen contributed to this article.