Uncertain platinum levels leave investors shy
By Clara Denina and Jan Harvey
LONDON (Reuters) – Investors are unlikely to rush back into platinum any time soon after a minimal price reaction to its biggest-ever supply shock highlighted a major problem: no-one knows how much metal exists above ground or more importantly who holds it.
Yet platinum, used mostly in automotive catalytic converters which clean up exhaust emissions, also failed to react to a 2.4 million ounce accumulation of metal into exchange-traded funds since 2010. The metal has lost seven percent this year and now sits close to 2009 levels around $1,200 an ounce.
The riddle about the level of inventories holds the key to the price direction of the metal, which is also used in jewellery.
As banks start to get uncomfortable about the pace of platinum's sell-off, they are closing out long positions and reevaluating the global market balance.
Figures from refiner Johnson Matthey, for years considered a reference measure of supply and demand fundamentals, put the platinum market in deficit for 11 out of 14 years in the period spanning 2000 to 2013. The cumulative shortfall for the whole period was 1.525 million ounces worth around $1.94 billion.
But analysts' estimates of total above-ground stocks range from four million to 20 million ounces, worth anything between $5 billion and $25 billion, raising the question of how and when that inventory was built up.
WHO HOLDS IT?
More important is the question of who owns these stocks, and under what circumstances they would be prepared to make them available to the market.
"There are adequate inventories in the hands of financial interests… and some are hedge-style investors," said Rick Rule, chairman of broker Sprott U.S. Holdings.
"When the momentum in platinum broke as a consequence of the consciousness of the strike, that financial interest started to …lock in whatever gains they had and to outweigh the costs."
But it wasn't only the Russian state that exported raw materials: some very rich individuals may have used the metals to export some of their net worth out of the country, sources said.
"The supposition in the mining industry has always been that some of the well-connected people who would now be called oligarchs in Russia were able to facilitate a transaction where they bought some physical platinum and palladium from the state and caused this to withhold supply from the market," Rule said.
"We have seen selling from investors who, if they think prices are cheap, will fill their boots, and if they think prices are at a good level, will sell."