Futures markets play a significant role in platinum pricing, but calls are being made for price determination to be done in a far more transparent manner.

Private fund manager and equity trader Dr Fraser Lee Murrell, of Melbourne, Australia, has questioned the fairness of futures markets against the background of the platinum price remaining low in these markets.

In contrast, outgoing Impala Platinum executive director for marketing Derek Engelbrecht has defended futures markets and explained how their activities provide a means for platinum users, like autocatalyst manufacturers, to hedge themselves against platinum price risk until their customers, like the car companies, have been invoiced.

But, given the prolonged platinum strike and the lower supply scenario, many are surprised by the lack of price response.

Murrell contends that the same parties appear to be controlling both sides of futures markets.

But Engelbrecht counters that if bankers keep selling the market short and drive the price down, platinum users will see an opportunity and buy.

Murrell produced a paper last year in which he drew attention to developed countries using futures markets to set the price of the commodities that they want, in the currencies that they print, which was leaving developed countries out of pocket, despite being the owners of the resources.

He calculates that undeveloped producing countries are selling their commodities for decreasing amounts of freshly printed paper currency as contracts are rolled over from month to month and very rarely settled by physical delivery of metal.

He finds that daily trading in paper futures often exceeds a full year of physical mine supply and so, by sheer volume of trading, the futures market dominates the physical market, rather than visa versa.

“This means that the futures market can basically set any price that it likes,” he contends, adding that, because the developed countries are net consumers rather than producers, it is in their interests to set the lowest price possible, “and they do exactly that”.

In this way, he argues that the traditional function of the market has been turned on its head. With no commodities of their own, the developed countries are able to both set the price with freshly printed paper money and consume all the commodities that they want, even though they do not have those commodities in their own ground.

He laments that producing countries are often selling their commodities into the so-called ‘free market’ below their cost of production.