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SA products drive funds to new heights

May 21, 2014

LONDON: Holdings of physically backed palladium exchange-traded funds (ETFs) hit record highs this week after heavy inflows into two products launched in South Africa in March pulled in half a million ounces of metal in less than two months.

From here, analysts say holdings of palladium ETFs - popular investment vehicles which issue securities backed by physical metal - will probably climb further as investors seek exposure to this year's best-performing precious metal.

Palladium has outperformed platinum this year in rand and dollar terms. Earlier this month, it reached its most expensive level in comparison with its sister metal since mid-2002.

A member of the platinum group, palladium is used chiefly as a component in autocatalysts, primarily in the petrol engines favoured in the US and Chinese markets.

ETF holdings, as measured by Reuters, hit 2.271 million ounces on Friday, beating the previous all-time high from 2011 of 2.269 million ounces, after a near-8 000-ounce inflow into Standard Bank'sJohannesburg-listed AfricaPalladium ETF on Monday.

AfricaPalladium and a second fund, Absa Capital's New Palladium, were launched in March to meet demand from South African investors seeking a domestic palladium fund.

"We've seen half a million ounces go into the ETFs so far - that's in less than two months," Mitsubishi analyst Jonathan Butler said. "If we were to see that rate of growth sustained for the remainder of the year, we could be at well over a million ounces.

"Our basic assumption this year is that we'll see further growth.

"In the short term, for the remainder of this year, we expect it to be a strong element of demand, and to push the palladium market even further into deficit."

The Johannesburg-based palladium ETFs were hotly awaited after a platinum-backed fund launched by Absa in 2013, NewPlat ETF, brought huge inflows, growing within four months into the biggest fund of its kind.

The two funds hold 568 000 ounces of palladium. Those inflows, along with supply concerns from number one producer Russia due to its stand-off with the West over Ukraine, have helped drive prices to their highest level, $827.50 (R8 570.25), since August 2011.

They are trading just below that high, at $815.75 an ounce, up |14.5 percent from the start of the year, outperforming gold, which is up 7.2 percent, and platinum, up |7.4 percent.

Unlike other precious metals palladium has historically been little used as an investment vehicle.

Investment accounted for only 38 000 ounces of palladium demand last year, according to analysts at Thomson Reuters.

The popularity of the palladium ETFs suggests this is changing. - Reuters

Cape Argus

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Source: Cape Argus (South Africa)

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