Platinum Drops Most in Almost 18 Years as Investors Doubt ETF

By Feiwen Rong and Danielle Rossingh

Nov. 22 (Bloomberg) -- Platinum slumped the most in almost 18 years in London, wiping out two days of gains, as some investors doubted the prospect of an exchange-traded fund being introduced for the precious metal.

Platinum, used in jewelry and car-exhaust systems, dropped when speculation about an ETF attracted skepticism that supply may not be enough to support a fund similar to those already available for gold and silver. So-called ETFs purchase and store metal, allowing investors to trade assets without owning them.

An ETF would be ``disruptive'' because the platinum market is ``very narrow,'' John Sheldrick, finance director of Johnson Matthey Plc, the world's biggest distributor of platinum-group metals, said in an interview today. ``It would lead to more volatility.''

The platinum market is moving closer to a match between supply and demand after eight years of deficit. The shortfall this year will be 20,000 ounces, compared with 70,000 ounces in 2005, Johnson Matthey said in its Nov. 14 market review.

``I am a firm believer in ETFs, but profitability for an ETF for platinum would swing enormously in a small and illiquid market,'' Jonathan Barratt, managing director at Commodity Broking Services, said by telephone from Sydney today. ``It's dangerous to trade platinum at the moment as the volatility is unbelievable.''

Platinum for immediate delivery in London fell $99, or 7.90 percent, to $1,152.50 an ounce at 4:40 p.m. in London. A close at that level would make it the biggest one-day drop since December 1988. The metal jumped as much as 12 percent to a record high of $1,402.50 yesterday.

Market Is `Bruised'

On the Comex division of the New York Mercantile Exchange, platinum for for January delivery fell $69.10, or 5.7 percent, to $1,150 an ounce. Prices are up 17 percent this year.

``If prices were to remain this high for an extended period, jewelry demand in China would fall,'' which may lead to a surplus, Sheldrick said.

The platinum market is ``feeling bruised,'' following the commodity's recent moves, Robin Bhar, a London-based analyst with UBS AG, said in e-mailed note today.

``Short-term forecasts in platinum are impossible at the moment,'' Bhar said. The metal ``could trade hundreds of dollars higher or lower in the next few days.''

Speculative buying over the launch of an ETF prompted some investors to purchase the precious metal at above $1,300 an ounce yesterday. These investors are now selling as prices decline, said Nobito Kaneda, a platinum trader at Sojitz Corp. in Tokyo.