In a recent article, we explored the impact on the platinum and palladium markets of the five-month-long miners’ strike in South Africa and postulated that one reason the price did not respond robustly to the loss of supply – South Africa does after all supply some 40% of global platinum – was due to inventory levels held in European vaults.
Consider, for a moment, the loss of nickel ores from Indonesia over a similar time frame which has resulted in a 50% price increase to its yearly peak in May and is still some 30% above Jan 1 prices as of today.
A ThomsonReuters article supports our earlier proposition and throws doubt on the prospects for the platinum price rising significantly in the year ahead. The murky world of precious metal stocks in Swiss vaults has long been a known “unknown,” as they say. We have known for some time that considerable inventory exists but we do not know how much, exactly where it is held or by whom.
As the article explains, one location, the Zurich, Freilagar or Freezone, could hold about 20% of the total stocks held in London and Zurich, the world’s two main storage locations. Even the Swiss are getting a little concerned about the opacity of their own system, although more for reasons of tax, customs tariffs, and traceability than worries about the effect they could have on the market.
Freilager’s tax-exempt status means any platinum stored there does not appear in official import/export data and few people get to see it, let alone assess how much of it is there. Apparently, over the last year, the amount of metal stored there has increased a lot, demand for storage space is said to now outstrip supply with no one having any idea how much anyone else is holding. Estimates vary between 4 million and 20 million ounces, worth anything between $5.8 billion and $29 billion.
Investors, no doubt, own much of this metal, but producers, processors, consumers and traders, all for perfectly legitimate reasons, are holding some as well. Indeed, it is probably producer stocks that have served to keep the market supplied, prices stable and contracts honored during the five month strike. If strikers had realized how much producers were carrying they may have thought twice about embarking on a strike that they probably did not expect to last as long as it did.
But it also raises the question that without any form of central registry and oversight, how much of this inventory is from ill gotten gains? Regulators pour over bank accounts and financial transactions to trace wrongdoers but there could be billions of dollars equivalent in untraceable precious metals sitting in these vaults.
Yes, you guessed it, I am just jealous a little of it isn’t mine.