HardAssetsInvestor

Written by Drew Voros  |

April 12, 2012

ETFS’ Harvey: Tight Palladium & Platinum Supplies Could Make Respective ETFs Swing-Suppliers

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Senior vice president of ETF Securities, issuer of the only U.S. physically backed palladium and platinum exchange-traded funds, says shrinking supply of both metals make ETF holdings more valuable.

In 2010, ETF Securities launched the first—and to this day, the only—physically backed palladium and platinum exchange-traded funds. Today ETFS Physical Palladium (NYSE Arca: PALL) and ETFS Physical Platinum (NYSE Arca: PPLT) have $510 million and $801 million, respectively, in assets under management. HAI Managing Editor Drew Voros recently spoke with Tim Harvey, senior vice president of ETF Securities, about both metals and how each have unique supply and demand fundamentals that Harvey says makes the metals each fund owns even more valuable.

Hard Assets Investor: Let’s start with the basics. What are platinum group metals?

Tim Harvey: Platinum group metals were first discovered in about 1750. Many of the platinum group metals were—and this is where the name derives from—supposed to be platinum. It was only over later years that people with improved scientific techniques and separation techniques realized that not everything was platinum, that you had other metals in there, like palladium and others.

HAI: What is the difference, in laymen’s terms, between platinum and palladium?

Harvey: Palladium is the lightest of all the metals—lightest as in density. So it's something you can mix into an alloy.

HAI: Why should an investor consider platinum and palladium over gold and silver?

Harvey: They’re very different metals. Gold is looked upon very much as a financial instrument, as a currency of last resort, and doesn’t have that many industrial applications, whereas metals like platinum or palladium are very much industrial metals.

In fact, all of the extracted mine supply is pretty much used on an annual basis. You're looking at a total mine supply of each metal of about 7 million to 7.5 million ounces per year. Gold’s mine supply may be about 80 million ounces a year, and silver’s nearly 800 million ounces a year. The amount of metal that is available for extraction is far less than what’s actually available for silver or for gold. Our platinum and palladium ETFs have allowed investors to take positions in the metals because the ETF itself acts as an above-ground stockpile.

HAI: What are the primary mining regions for platinum and palladium?

Harvey: It’s similar for both metals. About 75 percent of all platinum is found in South Africa. Another 12 to 15 percent is found in Russia. Platinum is also found further north in Zimbabwe and there are other trace mines around the world. But the vast majority of the metal—90 to 95 percent—is in southern Africa and Russia. When you’re looking at supply of palladium, 45 percent of it comes from Russia and 40 percent comes from South Africa.

HAI: There was just a strike at the Impala mine in South Africa, which is, I believe, the largest producer of platinum and palladium; is that correct?

Harvey: It’s the largest producer of platinum. The strike’s been resolved for now. The workers are back at work and mine production is getting back to normal. South Africa is obviously much more a political situation, where you have in-fighting within the ruling party—the ANC—and we’ve just seen [president of the ANC’s Youth League] Julius Malema being expelled by the party. He was encouraging workers to continue their strike and to demand better paying conditions.

But, of course, for the South African government, the Rustenburg mine, which is owned by Impala, is a great source of revenue directly and indirectly by taxation, royalty payments and the like. The mine is responsible for about 15 percent of platinum’s global supply, and platinum prices rose about 15 to 20 percent during the strike.