May 21, 2010 / 7:59 AM / 10 years ago

Redemption possible for platinum group ETFs

NEW YORK (Reuters) - Platinum and palladium exchange traded funds have benefited from expectations for booming demand from the auto industry, but investor redemptions could be possible if market sentiment changes for the worse, an ETF Securities executive said.

William Rhind, strategic director of ETF Securities Ltd’s U.S. unit, said that the London-based company could launch additional ETFs backed by platinum group metals in other markets due to rising demand.

“ETFs just reflect the demand in the market for a particular metal. So, right now, it reflects demand because people feel like both platinum and palladium are a worthwhile place to invest,” Rhind told Reuters in an interview.

“However, if market fundamentals change and people no longer see them as good investments, I am sure we would expect to see redemption,” he said.

ETF Securities’s U.S. Physical Platinum Shares and Physical Palladium Shares, both launched in January, have been tremendously popular among institutional investors, and latest data showed their metal holdings held near all-time highs this week at above 1 million ounces on a combined basis.

On Thursday, platinum and palladium prices registered their worst two-day losses since December 2008 and nearly wiped out gains for the year, as funds exited the markets because rallies driven by economic optimism were seen as overdone.

Platinum traded on Thursday at $1,500 an ounce, having hit a two-year high above $1,700 an ounce earlier in May, while palladium was at $410 an ounce, sharply lower than a peak of $570 set in April.

Both platinum and palladium were almost flat for the year, as double-digit gains for each metal fizzled after tumultuous losses this week.

On Monday, platinum specialist refiner Johnson Matthey said in a closely watched report that rising investment may take platinum to $2,000 an ounce in the next six months. That would be its highest since mid-2008.

Physical investment demand for platinum rose 19 percent in 2009 to 660,000 ounces, boosted by strong growth of platinum and palladium ETFs, Johnson Matthey said.

Rhind said that investment alone, which represented less than 5 percent of total demand, was not enough to keep driving prices higher.

“The industrial pick-up that we have seen from the auto industry has been positive. As long as the fundamentals remain positive, ETFs and investment should be solid,” he said.

On Monday, General Motors Co posted a first-quarter profit and said it was on track for its first full-year profit since 2004.

Autocatalytic converter demand traditionally accounts for half of the world’s total platinum consumption. Last year, auto-sector buying fell to just 32 percent, JM said.

In the United States, ETF Securities currently has gold, silver, platinum and palladium ETFs, and is in the process of launching a combined precious-metals fund. The company also runs a string of commodities-backed ETFs in Europe, Japan and Australia.

Rhind said there was still room for the company to expand on a global basis.

“Provided that there is demand, as new ETF markets develop around the world, we would certainly look to list our most popular products there, and PGMs have been very popular in the last few years.”

Editing by Walter Bagley

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