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London - Platinum-backed exchange-traded funds are set for their biggest one-month inflow in 18 months in August after deadly violence at a mine in South Africa, source of four out of five ounces of the white metal, fuelled fears of supply constraints.
Production at the Marikana platinum mine, operated by number three producer Lonmin , remains suspended two weeks after clashes between unions led to the death of 44 people, including 34 striking miners shot dead by police.
Platinum prices rose 12.7% in the seven days after the outbreak of violence to a three and a half month high of $1 558.49 an ounce and are currently holding near $1 500.
The four platinum-backed ETF groups monitored by Reuters - which include funds operated by ETF Securities, Swiss & Global Asset Management and Zurich Cantonalbank - have between them added 88 821 ounces of metal to their holdings so far this month, worth $133.2m at today's prices.
Most fresh inflows were seen into funds operated by London-based ETF Securities, Reuters data showed. A fund run by its U.S. arm has raised its holdings by 58 805 ounces this month, while its European and Australian funds have added 28 892 ounces.
"While I have a bullish view on the platinum price in the medium to long term, the near term is more difficult, given that with demand weak, the call is highly tied to developments in South Africa," Nick Brooks, head of research at ETF Securities, said in an interview with Reuters.
"If the supply problems persist, then it is likely that investors will continue to build their positions. However, it is a situation that needs to be monitored very closely, and I suspect the flows could turn quickly once it appears supply is ready to come back onstream," he added.
Reuters data on global platinum ETF holdings shows that, discounting the addition of more than 350 000 ounces of metal from the inclusion of ZKB's fund in the total in early 2011, this month saw the biggest growth in ETF platinum reserves since late 2010.
ETFs, which issue securities backed by physical stocks of an asset, have proved a popular way to invest in precious metals since the start of the financial crisis without investors having to take delivery.
Falling Demand
Platinum prices are up nearly 8% this year, regaining some ground lost in a 21% slump in 2011 linked to falling demand, chiefly from the European car industry. Platinum, chiefly used in autocatalysts and also in jewellery, has outperformed both gold and its sister metal palladium this year.
Despite the immediate impact of the Marikana violence, analysts say that with demand still weak, unrest in South Africa will have to result in many more ounces lost to fuel a sustained increase in prices.
Prior to the unrest, which was estimated to be costing Lonmin around 2 500 ounces of production a day, banks in Europe and the United States were predicting a platinum market surplus of between 100 000 and 400 000 ounces in 2012.
Lonmin [JSE:LON] is still working to get its operations back on track. Fewer than 7 percent of its 28 000-strong South African workforce reported for duty on Thursday, as the platinum producer held talks with warring unions aimed at cooling tensions and bringing people back to work.
"We were originally forecasting from July a 120 000 ounce surplus, which would be two months' worth of Lonmin production," Citigroup analyst David Wilson said.
"If this goes on for another month and a half, notionally you have a much tighter market, particularly if you have the ETFs buying into it as well."
