London - Investors are unlikely to rush back into platinum any time soon after a minimal price reaction to its biggest-ever supply shock highlighted a major problem: no-one knows how much metal exists above ground or more importantly who holds it.
Analysts predicted a surging market as a record five-month labour stoppage in top producer South Africa wiped out more than one million ounces of output worth $1.28 billion (R14.2 billion).
Yet platinum, used mostly in automotive catalytic converters which clean up exhaust emissions, also failed to react to a 2.4 million ounce accumulation of metal into exchange-traded funds since 2010.
The metal has lost seven percent this year and now sits close to 2009 levels around $1,200 an ounce.
The riddle about the level of inventories holds the key to the price direction of the metal, which is also used in jewellery.
As banks start to get uncomfortable about the pace of platinum's sell-off, they are closing out long positions and reevaluating the global market balance.
“If you start pitching through the historic data, it begins to look like... the demand supply balances in the 2000s weren't as tight as the data suggests,” Citigroup strategist David Wilson said.
Figures from refiner Johnson Matthey, for years considered a reference measure of supply and demand fundamentals, put the platinum market in deficit for 11 out of 14 years in the period spanning 2000 to 2013.
The cumulative shortfall for the whole period was 1.525 million ounces worth around $1.94 billion.
But analysts' estimates of total above-ground stocks range from four million to 20 million ounces, worth anything between $5 billion and $25 billion, raising the question of how and when that inventory was built up.
Reuters in June revealed that vaults in the Zurich freezone in Switzerland store around 20 percent of the total stocks of platinum held in London and Zurich, the world's two storage centres for the metal.
WHO HOLDS IT?
More important is the question of who owns these stocks, and under what circumstances they would be prepared to make them available to the market.
“There are adequate inventories in the hands of financial interests... and some are hedge-style investors,” said Rick Rule, chairman of broker Sprott US Holdings.
“When the momentum in platinum broke as a consequence of the consciousness of the strike, that financial interest started to ...lock in whatever gains they had and to outweigh the costs.”
In the early 2000s, following years of large exports of platinum and palladium from main producer Russia, there was a transfer of stocks from the hands of the Russian state to those of big institutional investors and large family office type investors based in North America, a banking source said.
“Some hedge funds accumulated platinum that is mostly stored in physical sponge (mostly used by automakers) or pool accounts, and some of it is probably in the United States,” a hedge fund manager said.
Meanwhile, with the rouble crisis in 1998, the Russian government “sold and exported every commodity that they could because they would starve for dollars and pledged them as collateral for loans,” the fund manager said.
But it wasn't only the Russian state that exported raw materials: some very rich individuals may have used the metals to export some of their net worth out of the country, sources said.
“The supposition in the mining industry has always been that some of the well-connected people who would now be called oligarchs in Russia were able to facilitate a transaction where they bought some physical platinum and palladium from the state and caused this to withhold supply from the market,” Rule said.
Other sources said that there are also investors holding platinum in China, by far the world's biggest jewellery consumer of the metal. And they too have started to divest this year.
“My sense is in 2013 they stocked up and in 2014 they let this stuff go,” Philip Klapwijk, director at consultancy Precious Metals Insights said.
“We have seen selling from investors who, if they think prices are cheap, will fill their boots, and if they think prices are at a good level, will sell.” - Reuters