LONDON Investors bruised by platinum's dismal failure to capitalize on a five-month strike in 2014 are not convinced that stocks of the metal have shrunk enough to justify a return to the market, despite positive supply-side news this year.
The extent of stocks became apparent during the strike in number one producer South Africa two years ago, when a production loss of more than a million ounces resulted in no supply shortage, and little response in prices.
Uncertainty over how abundant these stocks are is continuing to curb investment interest in the metal, with holdings of platinum-backed exchange-traded funds (ETFs) falling to their lowest since mid 2013 this month.
"We retain a cautious outlook and low allocation to the platinum sector - 1 percent of the fund - because of a general lack of transparency and ongoing concerns regarding large unreported inventories," James Sutton, client portfolio manager at the JPM Natural Resources Fund, said.
The market was taken by surprise in 2014 by the depth of platinum stock available.
Inventories are held throughout the supply chain, by producers, refiners and end-users. Market players at the time also suggested investors could be holding 20 percent of platinum stocks in London and Zurich in "off-shore" vaults.
Transparency remains an issue. The World Platinum Investment Council estimated in September that above-ground platinum stocks had dwindled to 1.9 million ounces from more than 4 million ounces at the end of 2012.
However, that excludes stocks held by ETFs and exchanges, or working inventories held by producers, refiners, fabricators or end-users. Those stocks are still largely an unknown quantity -- and that is a concern to potential investors.
Bullish investors argue stocks of the metal have now probably run down, leaving the market more vulnerable to supply-side shocks.
But while it has risen along with other commodities this year, platinum has underperformed gold and palladium despite a wealth of threats to supply, from smelter outages in South Africa to safety stoppages and wage talks.
Once, just the suggestion that output was under threat was enough to drive prices up - the prospect of power cuts in South Africa in 2008 led to a 30 percent rally in a single quarter.
But neither the start of tense wage talks that have, in previous years, led to strikes, a walkout by 500 employees at an Impala Platinum refinery in Springs, South Africa, this week, or number one producer Anglo American Platinum's announcement that a smelter shutdown would cut output have eroded platinum's discount to gold.
Production outages would have to be prolonged and significant to drive any big new interest in platinum after its recent history, given persistent uncertainty over stocks.
"We've got to be at much lower stock levels now than we've been before, but we don't know what the starting point was of these hidden stocks," Hanre Rossouw, portfolio manager at Investec Asset Management, said.
Rossouw's fund has increased its exposure to the platinum sector this year through equity acquisitions. In 2014, it preferred exposure to physical platinum.
Platinum mining companies have reacted to the current price environment by focusing on cost-cutting and streamlining their operations. That strategy, along with rising platinum prices, has helped drive share prices higher this year.
But with cash costs still averaging $932 an ounce last year, less than $100 an ounce below current spot prices, a bigger move will be needed to really boost the sector. That would need investment, tipped to fall by a quarter this year, to start rising again - and that will depend on confidence that stocks have finally run down.
"When it happens it'll take everyone by surprise, and some people will be saying, 'I told you so'," Old Mutual fund manager Ian Woodley said. "Until then, you can take the view that if the shares are particularly cheap you can pick them up, or you can take the view that you don't want to be sitting on something for five years that just isn't going anywhere."
"In five years time, we might have a technological advance in motortrains that might change the entire industry composition. We just don't know."
(Reporting by Jan Harvey; Editing by Veronica Brown and Susan Thomas)