ANALYSIS - Platinum ETFs could soften blow from lower auto demand

By Frank Tang

NEW YORK (Reuters) - A proposal for the first-ever U.S. exchange traded platinum fund would give the white metal a shot in the arm and fill some of the void left by lower demand from the beleaguered auto sector.

Investment in platinum has risen even as demand from the auto industry fell for the first time since 1999. Some traders believe the market has hit bottom and a broad economic recovery is in the making that will stimulate more demand from car makers.

Platinum is mainly used in autocatalysts to clean exhaust fumes from vehicle emissions. That accounts for more than 60 percent of total platinum demand.

The investment interest prompted ETF Securities to file with the U.S. Securities and Exchange Commission to start the first platinum and palladium trusts in the United States. The company, however, must overcome stiff opposition from industrial users and clear regulatory hurdles.

Rob Kurzatkowski, futures analyst at optionsXpress in Chicago, said that a U.S. platinum ETF would significantly boost investment demand as it would open the door to a much wider spectrum of investors.

"We have seen that the really explosive rally in gold happened to coincide with the launch of a gold ETF. We could possibly see the same type of phenomenon in platinum," he said.

ETFs back each security issued with physical stocks of a given commodity. They are listed on stock exchanges and offer investors exposure in the underlying commodity without taking delivery.

Investors see a large upside potential for platinum, which traded at $1,150 an ounce on Friday, down 50 percent from its record high of $2,290 an ounce set last March. Palladium is down 60 percent from its record high. Meanwhile, gold already seen a rally and is down only 7 percent from its all-time peak.