Platinum has witnessed a nice upward trend in 2010 and increased demand from the heavy-duty transportation sector and the industrial sector are expected to provide further positive price support to platinum-based ETFs like the ETFS Physical Platinum Shares (NYSEARCA:PPLT), iPath DJ-UBS Platinum TR Sub-Idx ETN (NYSEARCA:PGM), UBS E-TRACS Long Platinum TR ETN (NYSEARCA:PTM) and the First Trust ISE Global Platinum Index (NYSEARCA:PLTM).
A primary driver behind the expected elevated demand for catalytic converters made of platinum is due to their ability to reduce noxious vehicle emissions. According to the Wall Street Journal, Johnson Matthey, who controls nearly one-third of the market for platinum and palladium-coated catalytic converters, witnessed a 72% increase in sales of heavy-duty diesel catalytic converters during the first six months of the year as catalyst demand increased.
As for the future, this demand is expected to remain elevated as the European Union follows the US on imposing tougher heavy-duty diesel emission standards. Furthermore, demand for platinum in catalytic converters is expected to increase due to the metal’s higher efficiency in absorbing diesel-engine emissions than its sister metal palladium, which is the catalyst of choice in gasoline-dominated automobiles.
In addition to an uptick in demand from diesel fueled vehicles, as economies around the world grow, industrial demand for platinum will likely follow. Platinum plays a significant role in electronics in that it is used in the production of hard disk drive coatings and fiber optic cables. As demand for personal computers remains elevated around the world and is expected to further increase as personal incomes rise in developing countries, demand for platinum will likely see positive support
Further positive price support may also prevail from anticipated supply concerns. South Africa, the world’s largest producer of the metal, is expected to see a decline in production due to shaky labor relations, safety considerations and the relative strength of the South African Rand against the US Dollar.
At the end of the day, platinum has relatively strong fundamentals and increased demand of the metal will likely enable it to appreciate. Some ways to play platinum include:
- ETFS Physical Platinum Shares (PPLT), which holds physical platinum.
- iPath DJ-UBS Platinum TR Sub-Idx ETN (PGM), which tracks the Dow Jones-UBS Platinum Subindex Total ReturnSM is a single-commodity sub-index currently consisting of one futures contract on platinum.
- UBS E-TRACS Long Platinum TR ETN (PTM), which tracks an index that measures the collateralized returns from a basket of platinum futures contracts which are targeted for a constant maturity of three months.
- First Trust ISE Global Platinum Index (PLTM), which tracks an index designed to track public companies that are active in platinum group metals mining. Top holdings include MMC Norilsk Nickel JSC (OTCPK:NILSY), Impala Platinum Holdings Ltd. (OTCQX:IMPUY) and Johnson Matthey (OTCPK:JMPLY).
Disclosure: No positions