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TheStreet Open House

Platinum ETFs Likely to Remain Elevated

NEW YORK ( TheStreet) -- Platinum has seen 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 exchange traded funds like the ETFS Physical Platinum Shares (PPLT), the iPath DJ-UBS Platinum TR Sub-Idx ETN (PGM), UBS E-TRACS Long Platinum Index (PTM) and the First Trust ISE Global Platinum Index (PLTM).

A primary driver behind the expected elevated demand for catalytic converters made of platinum is because of their ability to reduce noxious vehicle emissions. According to the Wall Street Journal, Johnson Matthey, which 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 U.S. in 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, growing world economies also will further demand for platinum. The metal 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 U.S. dollar.

At the end of the day, platinum has relatively strong fundamentals and increased demand of the metal will likely enable it to luster.

Some ways to play platinum include:

  • ETFS Physical Platinum Shares holds physical platinum;
  • iPath DJ-UBS Platinum TR Sub-Idx ETN, 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 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 tracks an index designed to track public companies that are active in platinum group metals mining. Top holdings include MMC Norilsk Nickel JSC, Impala Platinum Holdings and Johnson Matthey.

Written by Kevin Grewal of SmartStops in Houston.

Grewal has no positions in the securities mentioned.

Kevin Grewal is the founder, editor and publisher of ETF Tutor and serves as the editor at www.SmartStops.net , where he focuses on mitigating risk and implementing exit strategies to preserve equity. Additionally, he is the editor at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Prior to this, Grewal was a quantitative analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.

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