Swiss vaults cap price of platinum

Zurich (June 29)  Underground vaults next to a Swiss farming village may reveal one reason for the platinum market’s indifference to its biggest-ever supply shock.

Most analysts and market players expected steep price increases for the precious metal as a record five-month mining strike in South Africa, which ended on Tuesday, wiped out some 40% of global supply. Yet values have been stuck in a $140/oz (about R1 480/oz) range, gaining just 5% this year.

Estimates of the total platinum stock value vary by billions of dollars, mainly because of uncertainty about how much metal is stored in offshore vaults.

The Zurich Freilager, or free zone, has been used since the 1920s to store valuables, but little is known about what goes in and out of the industrial park, advertised by precious-metals brokers for the high level of privacy it offers. Its vaults alone could hold about 20% of the total stocks of platinum in London and Zurich, the world’s two main storage centres, market players said.

“Miners, refiners, investors, trade houses — they all hold stocks there,” said a German trader close to the car industry. He and other sources in the industry, the main consumer of the metal for catalytic converters, said this was a major reason prices did not shoot up with the strike.

“Every company knows how much it has, but not how much the others have. But users know that there is metal there and therefore there was no panic buying,” said the trader.

Storing metal in bonded warehouses is routine practice among purveyors of commodities and the companies involved have not come under the kind of international pressure for more disclosure felt by Switzerland’s famously secretive banks.

The Swiss Federal Department of Finance, however, voiced concern about the Freilager system in 2012 that is expected to lead to some reforms by the end of this year. Among the issues it raised was the ease with which the stored goods could be sold in the vaults without tax consequences.

In April, the Swiss Federal Audit Office noted the warehouses’ role in easing trade, but asked the government to present a more comprehensive plan for them by the end of 2015 “that takes the economic and political stakes into account”.  Its report noted issues such as “errors relating to the customs tariff, declaration of origin when declaring goods, inventory irregularities, a lack of traceability of the merchandise and flaws in stock accounting”.

The Freilager’s tax-exempt status means platinum stored there does not appear in official import-export data and few people get to see it, let alone assess how much is there.

Mark O’Byrne, director of precious metals brokerage Goldcore, visited an underground vault there in 2008 and saw 1kg and 6kg bars of platinum. But it was not stored by itself. “There was a large number of pallets on which were piled an array of gold, silver, platinum and palladium bars,” he said.

Zurcher Freilager AG, the company that lets space for storage, said that what companies stored was “beyond our knowledge”.

It declined Reuters access to its facilities. “We don’t ... give information about clients’ business and the facilities of our company,” said chief financial officer Frank Smits.

Logistics firm Via Mat International, one of the main companies that brokers say rents space from Zurcher Freilager AG, said it operated vaults in bonded warehouses in the greater Zurich area, but declined to give further information.

Zurich has traditionally been the hub of platinum storage and distribution. But given the lack of visibility, most analysts ignore offshore stock movements when estimating global inventories, generally including import data, stocks backing platinum futures contracts and exchange-traded fund holdings. The estimates range from four million to 20 million ounces, worth anything between $5.8-billion and $29-billion.

Source: Reuters