Platinum ETFs In Focus As Auto Sales Surge

by on January 4, 2010 | ETFs Mentioned:

After struggling just to survive for much of 2009, the U.S. automotive industry is showing surprising signs of life in early 2010, as surges in foreign demand and better-than-expected domestic results give the struggling sector a boost. While it’s far too early to tell if the turnaround will be sustainable or is simply a blip on the radar, recent developments have investors revisiting a sector that was once left for dead. While this is obviously good news for the “big 3″ (or perhaps more appropriately, the “medium six”), a potential resurgence for carmakers could impact numerous asset classes, as evidenced by platinum’s mini-rally in the first session of 2010.

General Motors announced on Monday that 2009 sales in China rose 67% to a record 1.8 million vehicles, as tax cuts and incentives designed to boost the industry apparently had their intended effect. December sales nearly doubled from the year ago period, totaling nearly 200,000 vehicles in the final month of the year.

As auto sales in the U.S. have plummeted amidst a tightening of consumer budgets, Detroit has begun looking to emerging markets, and China in particular, to pick up the slack. Chinese auto purchases surpassed those in the U.S. for nine of the first 11 months of the year, an event that would have been unimaginable just a few years ago. But the increased percentage of sales derived from China isn’t attributable solely to a drop in U.S. purchases. Figures due out later this week are expected to show that total auto sales in China jumped by 44% in 2009 to 13.5 million units. Even as Chinese consumers purchase automobiles in record numbers the market maintains vast potential: auto ownership rates in China are as low as ten per 1,000 people, compared to more than 750 per thousand in the U.S.

And there’s reason to hope that 2009 won’t be a blip, but the beginning of a sustainable trend. “Despite the sales records in 2009, it looks as if 2010 will be even stronger,” GM China president Kevin Wale said in a statement. “The industry outlook is strong and we expect more growth, albeit on a somewhat slower pace,” GM China president Kevin Wale said in a statement.”

Platinum Prices Surge

Platinum ETFs Have Surged To Start 2010Precious metal investing has traditionally focused on gold and silver, but platinum is becoming an increasingly popular safe haven investment as well. Platinum is one of the world’s rarest metals,with annual global supplies totaling only about 6 million ounces, meaning that prices can be very volatile at times. For a more thorough look at drivers of platinum and palladium prices, see this guide.

While platinum has a number of industrial uses — it’s found in everything from jewelry to lab equipment to thermometers to electrodes — its primary use is in catalytic converters for the automotive industry. Catalytic converters allows complete combustion of unburned hydrocarbons from exhaust into carbon dioxide and water vapor, making it a critical component of any automobile. Nearly half of the global platinum supply is used by auto manufacturers each year, establishing a strong relationship between metal prices and the health of the auto industry. For better or worse, the price of platinum (and the performance of platinum ETFs) will always be tied to the global automotive industry.

In 2009, global platinum demand is expected to decline by 4.4% to 5.92 million ounces, with autocatylast demand slipping by a third to less than 2.5 million ounces.

Platinum ETF Options

For investors looking to gain exposure to platinum prices, there are a number of ETF options (for more actionable ETF investment ideas, sign up for our free ETF newsletter).

  • iPath DJ-UBS Platinum Trust Subindex ETN (PGM): This ETN is based on an index composed of one futures contract on the commodity of platinum. After slumping in the final month of the year, PGM has surged in the first session of 2010.


  • E-TRACS UBS Long Platinum ETN (PTM): This note is designed to measure the collateralized returns from a basket of platinum futures contracts. The commodity futures contracts are targeted for a constant maturity of three months. PTM charges an expense ratio of 0.65%, making it ten basis points cheaper than the competing iPath product.


  • E-TRACS UBS Short Platinum ETN (PTD): For investors who believe that platinum prices are due for a pullback, UBS also offers an ETN designed to offer short exposure to platinum. This note is designed to track the short performance of the UBS Bloomberg CMCI Platinum Excess Return, plus a hypothetical 91-day Treasury Bill portfolio.


Coming Soon: Physically-Backed Platinum ETF?

The aforementioned exchange-traded products all use a futures-based strategy to gain exposure to platinum prices, but U.S. investors may soon have access to a fund that physically buys and stores the metal, eliminating the impact that the nuances of futures markets can have. ETF Securities (ETFS) has filed for approval on physically-backed platinum and palladium ETFs, and the proposed funds recently took a major step towards launch. ETFS already offers similar products in Europe that have become extremely popular among investors there.

Disclosure: No positions at time of writing.