[This interview previously appeared on HardAssetsInvestor.com
and is republished here with permission.]
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?
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?
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?
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
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?
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
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
HAI:That was also when platinum retook its price from
gold, right? There was a kind of flip-flopping back and forth
there, wasn't there?
Yes; platinum temporarily retook its place as the most expensive of
the precious metals, but now gold has passed platinum again. So
platinum should outprice gold because the cost of extraction of
platinum and palladium is far higher than it is on gold.
HAI:What do you think was the cause for gold to overtake
the platinum price? Was it the weakness in platinum or was it the
overbuying of gold?
It was a little bit of both; weakness in platinum comes from its
high correlation to the economic cycle. And when this was
happening, gold was outperforming platinum. We were at height of
the uncertainty when it came to whether Greece was going to
default, and the whole European debt crisis was back in the
headlines, and the story is repeating itself.
In terms of industrial demand, what are the percentages for each
About 50 percent of platinum goes straight into the auto industry
for catalytic converters. Platinum is used particularly in diesel
engines. And then, of course, it's used in the electronics industry
as well. Most of the platinum group metals get used for everything
from flat-screen TVs to factory technology and everyday things like
smartphones and touch screens as well. With palladium, you're
looking at about 65 percent of the supply going straight into the
How important is Chinese auto production to the future price of
platinum and palladium based on the use of catalytic
For platinum, I would argue that it is actually not necessarily
essential. But with palladium, you could make a good argument that
China is tied far greater to palladium than platinum is. Palladium
is used in nondiesel engines, which the Chinese are making for
domestic use and export. We're already seeing constraints on supply
because the constraints on supply of palladium are already there.
Chinese car manufacturing doesn't need to go anywhere near 100
million autos produced per year for it to have an impact on the
supply of palladium. At existing levels of Chinese car
manufacturing and global car manufacturing, we're already seeing
pressure on the palladium price.
How do your palladium and platinum ETFs capture that?
The only assets of the trusts are palladium and platinum. They're
stored in London or in Zurich because those are the centers of the
global platinum and palladium market for above-ground stock. Our
platinum ETF holds about 495,000 ounces of platinum. On the
palladium side, the ETF holds 795,000 ounces of palladium stored.
That's 10 percent of global supply. We are the single game in town
when it comes to physically backed platinum or palladium ETFs.
Some of that Russian palladium supply is a little bit murky, isn't
It is, and that's a huge advantage to the ETF, which is now taking
over as a swing-supplier from Gokhran, the Russian state
depository, where all precious metals and diamonds under the Soviet
Union had to be sent. So, Russian miner Norilsk, the world's
largest producer of palladium, had to send all of its metals to
Gokhran from 1935 - when the mine was first started - until 1996.
Norilsk has only been allowed to sell metal directly onto the
market since 1996. Prior to '96, everything had to be delivered to
Gokran and then Gokran would sell it onto the market.
Last October, an unnamed official in the Ministry of Finance
said that Gokhran was going to be dramatically reducing the amount
of metal it supplied to the market, and by 2014, it will be a very
marginal supplier of palladium. Now, nobody knows what this means,
because there's no transparency. However, for the last 40 years,
Gokhran has been the swing-supplier of palladium. For instance,
last year Gokhran provided 10 percent of platinum's global supply.
It has been as high as 15 percent of global supply. And now someone
in or close to the Ministry of Finance says Gokhran is not going to
be the key swing-supplier going forward. It's all changed. So,
you've already got a metal that is in tight supply and the
swing-supplier basically is withdrawing from the market.
That's why if China's not building 100 million cars a year, it
doesn't actually matter:They're making 20 million already and it's
already impacting palladium supply. It is illegal to buy a car
anywhere in the world without a catalytic converter. The only
metals you can use in catalytic converters are PGMs. The catalytic
converter must last the lifetime of the car, which is basically
150,000 miles. You can use industrial metals in catalytic
converters, but you have to replace them after 3,000 miles.
So in terms of legislation, auto manufacturers have to use
platinum and palladium in catalytic converters. And that's the real
key to it. In addition, your iPhone, your television - all these
products don't work without PGMs.
Silver is the greatest conductor of electricity known to man.
Mix it in with palladium and you get a very strong alloy that you
can put into the center of a chip as a solder and also the
conductor. So consider that nearly 70 percent of palladium is going
into the auto industry and 10 to 15 percent is going straight into
the electronics industry. This is where the palladium ETF is
potentially going to become the swing-supplier.
HAI:Thanks for the great information and your time,
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