On January 8, 2010, ETF Securities launched the first two ETFs of the new year, ETFS Physical Platinum Shares (PPLT) and ETFS Physical Palladium Shares (PALL). The firm already has similar funds trading in Europe. PPLT is the first Platinum ETF to come to market in the U.S. (there are already several Platinum ETNs) while PALL is the first Exchange Traded Product of any type to offer U.S. investors exposure to Palladium.
On January 14 at 2 p.m. ET, I listened in to the replay of a conference call held by ETF Securities shortly after launching these funds in which they lay out the long case for Platinum and Palladium on a mid- to long-term basis.
Here are my highlights from the call in bullet point form:
- Both PPLT and PALL hold physical quantities of their respective metals in secured vaults in Europe - there are no roll issues as a result.
- These ETFs should reflect the daily spot prices of Platinum and Palladium net of expenses. One share represents 1/10 of an ounce of Platinum or Palladium respectively.
- The funds charge 60 bps a year.
- First ETFs to hold underlying metals of Platinum and Palladium - thus no default risk. Previous Platinum funds are ETNs. There are no other Palladium ETPs trading in the U.S.
- These are precious metals with industrial applications - thus, they're more volatile, tied to industrial cycle.
- Both metals outperformed Gold handily in 2009 - Platinum was up 57% while Palladium was up 118% on the year (Gold was up approximately 25% in 2009).
- Both metals are still well below their highs seen in late 2007.
- Supply is heavily concentrated in two places: Russia and S. Africa. 78% of Platinum is mined in S. Africa while 50% of Palladium is mined in Russia (and another 35% in S. Africa). There are production risks associated with both of these countries - especially S. Africa.
- Cost of production is increasing as current supply becomes harder to reach.
- Autocatalyst share of demand has grown significantly over last 5 years and is increasing with heightened automobile emissions standards.
- Strong correlation between OECD BRIC Leading Indicators and Platinum/Palladium performance - this may largely be tied to rising rates of car ownership in BRIC countries.
- As more proof of the correlation between autocatalyst demand and Platinum/Palladium prices, the fall in car sales in 2008 helped tank both Platinum and Palladium prices with spot prices for Platinum alone falling nearly 40% in little over 6 months.
- Long-term car sales are in an up-trend due to the growth of the middle class in China and other BRIC nations - this is bullish for Platinum and Palladium, especially as emissions standards are raised globally.
- Investor demand has also been rising for physical Platinum and Palladium, hitting 6% of annual global supply for both metals in 2009. This is up from 2% and 3% for Platinum and Palladium respectively in 2007.
Here's a roundup of other articles on Seeking Alpha that should assist you in researching future prospects for Platinum and Palladium as well as how these new funds operate. I have broken them up by category for easier navigation.
Documents from ETF Securities
Introductory Articles on PPLT and PALL
- Platinum and Palladium: First New ETFs of 2010 Now Trading (Ron Rowland)
- Physical Platinum, Palladium ETFs Are Finally Here (Michael Johnston)
- Physically-Backed Platinum, Palladium ETFs Have Arrived ... Finally (Tom Lydon)
Guides to PPLT and PALL
- A Guide to Gold, Silver, Platinum and Palladium ETFs and ETNs (Seeking Alpha)
- The Ultimate Guide to the Platinum ETF (Michael Johnston)
The Fundamental Case for Platinum and Palladium
- Auto Sales Surge: Platinum ETFs to Benefit (Michael Johnston)
- Palladium: The New Platinum (Ray)
- Bitten by the Platinum Bug (Trace Mayer)
- Platinum Group Metals: The GM Angle (Hard Assets Advisor/Lara Crigger)
- Why I Would Sell Platinum and Buy Palladium (Rohan C. Pease)
- Trading Platinum and Palladium Ahead of the ETF Launch (Hard Assets Advisor/Lara Crigger)
Disclosure: Author doesn't hold any of the securities mentioned. This does not represent a recommendation to buy or sell any security.