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Written by Cory Banks  |

September 10, 2012

ETFS’ Rhind: Uncertainty Looming Over Platinum Market Will Endure, Supporting Higher Prices

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Managing director of ETF Securities, issuer of the physically backed platinum ETF ‘PPLT,’ says South African situation is a big, growing problem.

With platinum prices spiking over the last few weeks in the wake of the violent and deadly platinum mining labor strikes in South Africa, HAI caught up with William Rhind, managing director of ETF Securities, a leading independent provider of ETFs. The firm, which in 2003 pioneered the world’s first physical gold ETF in Australia, has launched seven physically backed precious metals ETFs in the U.S. Those include the ETFS Physical Platinum Shares (NYSE Arca: PPLT), with nearly $700 million in assets under management. HAI Contributing Editor Cory Banks sat down with Rhind to discuss the precious metals market and specifically the platinum market, which is currently facing crippling labor problems in the politically tenuous country of South Africa.

HAI: Let’s start with the current state of platinum and palladium in regard to the South African mining strikes. Tell me a little bit about what’s going on and how that’s going to affect the outlook for those metals in the future.

Rhind: What a lot of people perhaps don’t realize is that 80 percent of the world’s platinum comes from South Africa, which is a huge concentration in one particular country. Any kind of disruption to the supply most likely has some kind of impact on the price. We saw this in 2008 when platinum made an all-time high of a just above $2,200 an ounce. The reason it made an all-time high was because of an infrastructure failure. The mining industry effectively lost electrical power, and production was halted.

Since 2008, there have been several instances of disruption to supply coming in the form of power issues, labor disputes and political problems. If there is a direct impact on supply, it’s almost certain they're going to have an impact on the price because of the concentration in that one particular country.

What’s happened most recently is that one of the largest South African producers, Lonmin, is embroiled in a labor dispute between two particular unions. That situation climaxed in a standoff with the police, and unfortunately, a lot of people were shot and killed. Production was halted while the strike was going on, which has resulted in some 3,000 ounces a day more of platinum not hitting the world market.

Now it’s manifested into a political crisis for the country as a whole. Significant deaths have occurred as a result of what is effectively a labor dispute, which would be almost unheard of in the U.S. or in Europe.

It’s become a huge problem. The undertones or the overtones to the situation are of a fight for resources and their role within South Africa. Nationalization, potentially, of the mines is a huge sort of political football. There are different political factions that are either clearly in favor of nationalization or some form of more government control. Then, of course, you have the mining companies themselves, which are clearly vehemently opposed to that, that feel like they already pay their fair share of taxes and other forms of support that they're obliged to do.

So it’s become a very difficult situation. But the net result of the impact for investors is that platinum and palladium are relatively balanced markets. They're pretty small, and there's fairly tight gap between supply and demand. And it doesn’t take a lot, in terms of a loss of production, to push platinum from being in a small surplus into a deficit.