Standard Bank completes its PGM exchange traded fund stable

Dec 02, 2015

Standard Bank will on Friday, 4 December list the first rhodium-backed exchange traded fund, (ETF), in South Africa and Africa, to complete its suite of available ETFs across the platinum group metal space. 

AfricaRhodium ETF, which is backed by the physical precious metal and designed to track the rhodium US dollar spot price in Rand, is only the second ETF to hit global markets.

Johann Erasmus, Head of Client Solutions, Business Development at Standard Bank, says the introduction of the latest ETF means investors seeking exposure to the complete basket of locally produced platinum group metals, (PGMs), will now have the option to do so at competitive prices.

”We are the only local bank that provides the full value chain for investing in PGMs,” he says. Standard Bank was first to market with the introduction of its Palladium ETF last year and introduced a platinum tracker product shortly thereafter. 

South Africa is the largest producer of PGMs in the world and producing about 80% of the annual Rhodium supply. South African PGM producers extract a mix of PGM metals, widely referred to as the PGM Basket, comprising roughly of 60% platinum, 30% palladium and 10% rhodium.  Although different standards can apply to foreign traded ETFs, local ETFs have to acquire the physical PGMs and store it within custodian vaults.  AfricaRhodium ETF requires 1 ounce of physical metal to be held for every 100 ETF investment units listed.

Mr Erasmus believes that despite the current pressure experienced in global commodity markets, taking a long term view on the PGM pricing cycle remains a sound investment. He adds that although a lot of emphasis has been placed on the drop in platinum prices, the metal only forms part of the local PGM story.

“By completing the PGM ETF offering, we not only provide investors access to rhodium, the price which is dictated by global supply and demand, but the ability to invest in the full PGM Basket as well” he says. “It makes it possible for investors to manage their respective views and market expectations within the PGM mix.”

Rhodium, like palladium and platinum, is mainly used in catalytic converters to clean vehicle emissions into less harmful gases. It is also used in the glass industry, specifically LCD screens for televisions and touch screen devices. But unlike its better known siblings rhodium is rarer and with a smaller market it can be subject to more erratic price swings.

Furthermore, even though rising car sales in the US and China could boost demand for palladium, some vehicle manufacturers might shift to using more rhodium in their catalytic systems, at the current price it might be viable to increase rhodium loading due to its efficiency.

The diesel versus petrol debate is currently very topical and can influence the direction of market prices, not to mention views taken on the global economies.

“If one invests directly into the underlying basket of PGM metals, you can manage such expectations by playing around with ratios across the value chain,” says Mr Erasmus.

He adds that popularity of Standard Bank’s previously issued PGM backed products has added further benefit as a local currency hedge, as the ETFs are priced in rand but tracks the dollar metal price.  The fact that investors don’t have to tap into exchange control allowances to obtain access to the precious metal market dynamics makes the offering even more attractive.  

“We have made one of the locally relevant industries more accessible to local investors,” he says.

Standard Bank was also the first bank to list local exchange trade notes (ETNs) on the JSE with the launch of ETNs that tracks the performance of gold, platinum, palladium and silver future prices in 2010. 

“We understand the market well and we have a close relationship with the producers, users and investors,” says Mr Erasmus. ‘’It makes it easier for us to meet the needs and the wants of the market and our clients.”

Mr Erasmus says the next step after the rhodium ETFs' debut on the JSE would be the possible secondary listings in other jurisdictions where sufficient investor demand warrants it.

Standard Bank has already listed the AfricaPalladium ETF in Namibia and will follow suite in other countries.

“We provide the most diverse range of commodity exchange traded products in South Africa to our investors. Our products also track commodities like wheat, copper, oil and corn,” he says.

Closer to home, Standard Bank will also be driving the local expansion of more traditional ETFs in the equity and fixed income product space.

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