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Bank provides exposure to locally produced PGMs

JOHANN ERASMUS Despite the current pressure on global commodity markets, adopting a long-term view on the platinum-group metals pricing cycle remains a sound investment

PLATINUM HEAVYWEIGHT As the largest platinum-group metals producer worldwide, South Africa produces about 80% of the world’s yearly rhodium supply

Photo by Reuters

5th February 2016

By: Donna Slater

Features Deputy Editor and Chief Photographer

  

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To complete its suite of available exchange-traded funds (ETFs) across the platinum-group metals (PGMs) space, financial services provider Standard Bank has introduced Africa’s first rhodium-supported ETF.

The AfricaRhodium ETF, launched in December, is the second rhodium-only ETF worldwide. It is supported by the physical precious metal, which is stored under the custodianship of Standard Bank and designed to track the rhodium US dollar spot price in rand.

Standard Bank client solutions and business development head Johann Erasmus says the introduction of the AfricaRhodium ETF will enable investors seeking exposure to the complete basket of locally produced PGMs to do so at competitive prices.

“We are the only local bank that provides the full value chain for investing in PGMs,” he states. Standard Bank first introduced its Palladium ETF in 2014 and introduced a platinum tracker product shortly thereafter to track the market performance of the commodity.

Primary Player
As the largest PGMs producer worldwide, South Africa also produces about 80% of the world’s yearly rhodium supply. PGM producers extract a mix of PGMs, widely referred to as the PGMs basket, comprising about 60% platinum, 30% palladium and 10% rhodium.

Although different standards can apply to foreign ETFs, local ETFs have to acquire the physical PGMs and store them in custodian vaults, thereby reducing risk for the investor.The AfricaRhodium ETF requires 1 oz of physical metal to be held for every 100 ETF investment units listed.

Erasmus believes that, despite the current pressure on global commodity markets, adopting a long-term view on the PGMs pricing cycle remains a sound investment. While much emphasis has been placed on the drop in platinum prices, the metal forms only part of the local PGM background, Erasmus adds.

In terms of rhodium market performance, its dollar price has been relatively stable for the past few months but, as with other commodities, it has been affected by a general mining industry downturn, says Erasmus. The downturn in rhodium has not been as significant as it was for palladium, with its rand value having increased, from about R99 a unit when trading of the AfricaRhodium ETF opened in December 2015 to about R105 a unit by mid- January.

Current global investment in platinum and palladium ETFs account for similar volumes held in ETFs – about 2.3-million ounces – though there are price differences between the two. This shows insight from investors in their favou- ring platinum over palladium, as more money is being invested in platinum.

The addition of a rhodium ETF enables investors to delve further into the niche markets of PGMs and home in on rhodium as it gains value and/or market acceptance.

“By completing the PGMs ETF offering, we provide investors with not only access to rhodium and the price dictated by global supply and demand, but also the ability to invest in the full PGMs basket,” says Erasmus.

Rhodium, like palladium and platinum, is mainly used in catalytic converters to clean vehicle emissions, so they are less harmful to the environment. It is also used in the glass industry, specifically liquid crystal display screens for televisions and touch-screen devices. However, unlike platinum and palladium, rhodium is rarer and, with a smaller market, it can be subject to more erratic price fluctuations.

Erasmus adds that, while rising car sales in the US and China could boost demand for palladium, some vehicle manufacturers might shift to using more rhodium in their catalytic convertor systems. “At the current price, it might be viable to increase rhodium loading, owing to its efficiency,” he says.

The automotive industry’s diesel versus petrol debate is currently very topical and can influence not only the direction of market prices but also the views of global economies, states Erasmus. “If one invests directly in the underlying basket of PGMs, you can manage such expectations by playing around with ratios across the value chain.”

Attractive Offering
The popularity of Standard Bank’s previously issued PGM-backed products has added additional benefits as a local currency hedge, says Erasmus, adding that the ETFs are priced in rands, but tracked according to the dollar metal price.

“The fact that investors do not have to tap into exchange control allowances to obtain access to the precious metals market dyna- mics, makes the offering even more attractive,” he explains, adding that Standard Bank has made one of the more locally relevant industries more accessible to local investors.

It was also the first bank to list local exchange-traded notes (ETNs) on the JSE with the 2010 launch of ETNs that track the performance of gold, platinum, palladium and silver future prices.

Erasmus states that the rhodium ETFs’ debut on the JSE will likely be followed by secondary listings in other jurisdictions where sufficient investor demand warrants it.

Standard Bank listed the AfricaPalladium ETF in Namibia in 2015 and might soon do the same in other countries.

Edited by Samantha Herbst
Creamer Media Deputy Editor

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