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First U.S.-Listed Platinum ETNs to Launch on NYSE

By Jon A. Nones

08 May 2008 at 06:24 PM GMT-04:00

http://www.resourceinvestor.com/pebble.asp?relid=42638

SEATTLE (ResourceInvestor.com) -- U.S. investors large and small will soon have an alternative to investing in platinum futures, almost solely traded by large hedge funds and brokerage houses. Two exchange-traded notes, the E-TRACS UBS Long Platinum ETN [NYSE:PTM] and E-TRACS UBS Short Platinum ETN [NYSE:PTD], will launch tomorrow morning, April 9, in New York.

Exchange Traded Notes (ETNs) are not equities or index funds, but they do share several characteristics with those products. They are senior, unsecured, unsubordinated debt securities that are designed to track the total return of a specific market index, less investor fees, and provide investors with exposure to the total returns of various market indices.

The UBS Exchange Traded Access Securities (UBS E-TRACS) platinum ETNs will track multiple maturities of the platinum NYMEX contracts using the UBS Bloomberg CMCI Platinum Total Return Index.

The UBS Bloomberg CMCI Index is composed of a basket of 28 commodity futures with a series of up to 7 different investment maturities for each individual commodity using the calculation of constant maturity forwards.

After their initial offering on Friday, E-TRACS UBS ETNs can be bought and sold through a broker or financial advisor on a U.S. securities exchange, offering individual investors markets and strategies that may not be readily available. The platinum ETNs will be the first U.S.-listed products of their kind.

In Europe, ETF Securities launched three platinum funds offering short, long and double-long exposure. Those include a physical platinum fund, which is backed by the metal itself, and two exchange-traded note products, backed by futures contracts. Zurich Cantonal Bank also offers a physical platinum fund, traded on the SWX Swiss Exchange.

In November 2006, the market was flooded with rumours that a physical platinum-backed ETF was soon to hit the U.S. market, sending platinum prices up 20% in one month. Fingers were pointed at Barclays Global Investors (BGI), the firm that launched the world's first silver-backed ETF iShares Silver Trust [AMEX:SLV].

However, Barclays’ spokeswomen, Christine Hudacko told Resource Investor at the time that it would not come from them. She said BGI had not filed any regulatory documents relating to a publicly-traded platinum trust and “has no immediate plans to do so.”

Even just speculation of a U.S.-listed platinum-backed ETF faced heated opposition from the platinum end-use industry, mostly automotive companies, concerned that a platinum ETF would squeeze the market and send prices too high for industrial needs.

In a recent commentary, Tom Lydon, proprietor of ETFtrends.com, cited Kevin Rich, CEO of DB Commodity Services, to help to explain why it would be very difficult to launch a platinum-backed ETF in the U.S.

“[Platinum] is not liquid enough to support an ETF,” said Rich. “There are not enough players transacting it.”

Rich said the last thing anyone would want is for a fund to take money in but find that it couldn't buy the underlying asset. The Commodity Futures Trading Commission (CFTC) is careful to make sure that trading activity doesn't lead to a situation in which investors corner the market.

“When you bring in an ETF, you make sure the supply and demand of the commodity are still driving the market,” Rich says.

In April, GFMS said in its Platinum and Palladium Survey 2008 that the platinum deficit was about 397,000 ounces last year. In 2008, the company expects production to decline a further 100,000 ounces due to power shortages in South Africa, but demand in jewellery and autocatalysts to ease, possibly balancing the market.

The VM Group reported in its fourth issue of The White Book that the platinum market will remain in a deficit of 360,800 ounces in 2008, although down from 412,400 ounces in 2007, as mine supply continues to fall offsetting any drop in demand.

However, ETF demand in platinum is expected to set new records, with an additional 300,000 ounces of platinum in 2008, according to VM Group. Platinum ETFs attracted inflows of 194,000 ounces in 2007, after being launched in April.

So far this year, ETFs have bought up another 180,000 ounces. As of mid-April, ETF Securities physical fund held nearly 340,000 ounces, while Zurich Cantonal Bank’s platinum fund held about 43,250 ounces.

The E-TRACS UBS, on the other hand, will not have any immediate effect on the supply and demand fundamentals of platinum since they are based on futures contracts, which are usually rolled over or settled with cash.



Platinum futures soared 34% in the first quarter and reached a record $2,308.80 an ounce on March 4, largely due to a falling dollar and supply concerns in South Africa, which supplies about 2/3 of the world’s platinum, due to power shortages.

Most-active futures have risen 52% in the past year, up 33% in 2007 alone, and 8.5% in the past five sessions. The dollar dropped 8.3% on the index last year, contributing to the rise.

July platinum futures surged $73.30 to $2,042.30 per troy ounce on the New York Mercantile Exchange today after the dollar fell 0.4% against a basket of six major currencies.