Platinum funds lure investors, observe analysts
AT A TIME when investors are bailing on most commodities, money is steadily flowing to platinum funds.
Exchange-traded products tracking the metal have seen assets rise to 88.6 tons, near a one-year high and about 1 percent from a record, data show. Funds in South Africa, where most of the world’s platinum is mined, saw the biggest increase in assets.
That’s a bullish sign to analysts such as David Jollie, head of research at Mitsui Precious Metals. With platinum prices near a six-year low, producers will have to cut production, according to Deutsche Bank’s Grant Sporre. He said prices would rally about 20 percent to $1 198 (R15 404) an ounce by the end of 2016.
“There’s a lot of knowledge in South Africa about the mining sector and a lot of interest in platinum. They know the supply side,” said Jollie in London. “These inflows suggest that they see value at prices approaching $1 000 an ounce.”
Platinum has been in a bear market for two years, and South African producers are losing money on as much as 40 percent of output, according to Rene Hochreiter, an analyst at Noah Capital Markets.
The metal fell 7.5 percent since the end of June. It traded at $997.82 an ounce yesterday.
Lonmin, the world’s thirdbiggest platinum producer, said in July that it would close shafts and cut as many as 6 000 jobs to reduce costs. Annual output would fall by 100 000 ounces, the company said.
“At these prices, the mines can’t open new ore faces,” Deutsche Bank’s Sporre said on Monday. “In 12 to 18 months, we’re going to see the mines pumping out less metal.”
The two South African funds – Africa-Platinum ETF, run by Standard Bank, and Absa Bank’s New-Plat ETF – have combined assets of R18.3 billion.
By comparison, the SPDR Gold Shares holds $24.2bn.
Both funds, which are denominated in rand, have fallen about 2.5 percent since the end of June. Combined assets increased by 5.5 tons.
While the value of platinum denominated in rand has increased in August, it’s not the main driver for investment, according to Hochreiter of Noah Capital Markets.
South African investors looking for a hedge to the weakening rand were more likely to pick up shares of stable companies with overseas operations, he said.
“They’re buying into positive market fundamentals, not just the outlook for the rand,” Hochreiter said. – Bloomberg