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 thank you I'm Charlotte McLeod with investingnews.com and here today with me is Edward sturk director of research at the world Platinum investment Council thank you so much for joining me today great to see you oh thanks for having me on it's much appreciated really good to be speaking with you and of course we're going to be talking today about Platinum the world Platinum investment Council recently released its latest quarterly report and one of the big takeaways is that you're now

forecasting a 2023 deficit of over a million ounces which would be the highest on record I want to look at the demand side first because looks like demand is going to increase this year by 27 percent Will Supply stays flat so can you outline for me what factors are driving that demand yeah thank you so as you say it's um uh the biggest uh deficit on record and that's really being driven by this really strong growth and demand 27 year on year which is kind of surprising given the you know somewhat uncertain

economic overlay we've got at the moment so you can break down a little bit and um that helps to kind of digest it so firstly you've got Automotive demands that's grown at about 13 year on year and that's being driven by a combination of things so firstly we've got increase in vehicle production numbers that's coming out of the back of the semiconductor crisis will shortage over the last couple of years that artificially suppressed vehicle output so we've got it kind of got a bit of a

recovery trade there and then that's accentuated by a couple of factors that ultimately in combination lead to higher loadings of platinum per vehicle so firstly you've got on a price basis Platinum for Palladium substitution in gasoline vehicles and then there's tighter emissions legislation particularly in China which is forcing more heavy duty and non-road vehicles to increase their their platinum loadings in order to meet the title emission standards and then stepping away from Automotive demands we've got industrial

demand we've just growing 14 year on year and that's due to capacity additions in the in the chemical sector and also in the glass sector predominantly in China again and that glass is being a little bit is glass fiber which is being used to construct wind turbines and obviously very important for the Renewable Power Generation various different photographers around the world and then finally we've got investment demand so we've had significant disinvestment from platinum over the last couple of years

and this year we're seeing it moved to positive investment demand which is creating quite a big swing in in that market and together adding up all of those that's what drives the 27 year-on-year increase in demand which contributes to that record deficit okay and we'll go into I think those different parts of the demand equation a little bit deeper I wanted to start with auto demand so I believe it's up 19 year on year in the second core order I wondered if you could put that into

context in terms of previous demand from the auto sector what does that look like if we if we look back a couple of years so I mean yeah what is birth bearing in mind of course that the comparable quarter last year was uh was one that was particularly low particularly weak because of the the semiconductor issues uh in terms of I guess kind of year-on-year increases on a quarterly basis it's probably about the strongest on record but I'd have to kind of go back and check the records to to say

that with 100 certainty um so yeah it is it is a a pretty sizable increase no I think that's exactly what I was hoping I was wondering if the previous year was particularly low to get that larger increase so I think you answered the question very well so it sounds like in the auto sector Platinum is benefiting right now a little bit at least from substitution when it comes to Palladium so I wondered if you could speak a little bit about that and how easy that process is how common it is because I imagine that it's

not quite as simple as maybe it sounds like when you just talk about it yeah so I mean it is you know in theory the Platinum degree metals have a degree of um uh you know interchangeability in in most applications but fundamentally Platinum is better at some um in some applications and Palladium and others and then rhodium you know still in in different ones but they can kind of all overlap a little bit so most vehicles have a combination of platinum Palladium and rhodium in their exhaust treatment

systems what we're really talking about is just the shifting of those rate those ratios um based upon economics the Palladium is being trading at a substantial premium to platinum for quite a long period of time and so effectively there's been a lot of work going in in uh um being able to to substitute some of that Palladium out and bringing platinum in just some purely economic rounds now it sounds sort of Fairly straightforward and in the past it was kind of done on a um two Palladium for One Platinum sort

of basis and then technology improves and it's kind of moved to a one-to-one type um uh you know type substitution but the challenge is as time's gone on emission standards have become more rigorous and so it's trying to do that substitution and meets tighter emission standards as has resulted in the need to develop an entirely new new catalytic converter and this is called The tri-metal Catalyst that's produced by um first by um the ASF in Europe and then it's been replicated by all of the

other major industrial players and effectively that's allowed for the substitution to occur but the once a vehicle is has been certified once a new model has been certified and goes into production at that point it's pretty much locked in for the lifespan of that platform and so that's typically around seven years and so the substitution that's occurring is in pre-production or pre-launch models um and as they go through certification in the last about 15 to the markets in any given year so any substitution

that's happening now let's say the plate of a Palladium ended up trading us out to parity again in the future it takes a long time for that substitution then to work its way out of the system and because of that 15 per annum new models um you know we'd start seeing if Palladium went to a deficit a discount to platinum would start seeing reversal with that substitution but again that takes a long time to work its way through the system okay really interesting to get that perspective on

how the cycle actually works so of course we know we've been talking about platinum's demand from the auto sector I wondered if we could look further into the future because we have of course electric vehicles are are becoming a growing part of the market for cars and I believe if I'm if I'm right about this you can correct me if I'm wrong don't think that Platinum is used in electric vehicles at least not significantly at this time so how does that how do you see that impacting Platinum demand as we

see that shift in the future more toward electric vehicles it's I mean it's a really important um question and I mean firstly I'd say a battery electric vehicles do use some Platinum uh but it's uh in the senses uh the temperature management sensors in the batteries but it is significantly less than in internal for Russian engine Vehicles so you know fundamentally battery electrification of the drivetrain um is going to have a huge bearing on the the future demand for that so it

comes down to a question mark a question of um you know how um how quick does battery electrification occur and then what does the tail look like for internal combustion engines and then combining that with um with changes in in legislation and emission standards going forward so we've done a lot of work on this and our view is that not all vehicle rolls and not all geographies are suitable for battery electrification with current Technologies you know fundamentally if you imagine driving a um a large

18-wheeler from coast to coast in North America you've got to stop every six hours to charge it probably takes takes to ten hours to charge and you're losing about a third of your payload to to the battery weight yeah that's not really a very sensible use of um of battery electrification and so for the time being whilst there are companies producing those sorts of vehicles we don't think there's going to be a huge amount of uptake equally if you're living in the central Africa

somewhere buying a Tesla and charging it just simply isn't a particularly viable option either so our view is that the tail of ice is going to be longer um than you know possibly a lot of other people think and uh and ultimately then that means that ongoing Automotive demands for platinum will be relatively sustained so to put it into context we see Peak ice coming in 2025 um never quite getting quite back to where it was at pre-covered levels but Peak Platinum doesn't happen until 2028

and that's just because of the increase the ongoing substitution and also higher emission standards requiring higher Platinum loadings per vehicle and then it tells off very gently but the big um one of the fundamental Alternatives about your electric vehicles is fuel cell electric vehicles so that's where you take green hydrogen and you use that as an energy carrier uh to to effectively in the fuel cell be converted back into electricity so it's kind of like a liquid battery really and

that's very very Platinum intensive so the future as ice declines is the likelihood that fuel cell electric vehicles take up the slack and in fact we think they'll end up using way more platform overall and the and fuel cells are much better suited to things like those heavy duty and high capacity utilization roles okay that is exactly the direction I was hoping you would go in there and talk about those fuel cell Vehicles as well yeah really interesting I think we we kind of tend to think

maybe you could have switched and suddenly we're done with platinum and certainly that's not the case so really good to go over that I also wanted to touch a little bit more on the industrial side of demand you know I think you mentioned back at the beginning of the conversation kind of interesting to see the demand growing while we have maybe recession concerns going on in the US as well as globally so maybe if we can talk a little bit more about the impact on demand from that perspective

yeah I mean again you know it's another area that's that's really a focus at the moment um given the economic concerns and I think we can kind of divide it up a little bit into this year and then you know perhaps talk about future years so for this year with that strong of 14 year and year demand growth for industrial applications we think that's more or less locked in regardless of what happens with the economics of this current year and the reason being is that industrial demand is driven more by

capacity editions than ongoing um needs so effectively when you build a new glass or chemicals or a petroleum facility you populate that with the Platinum needed for it to run going forwards and then every year all you're doing is really just buying a little bit more Platinum to top up for any losses that occur through the industrial process and all of the Platinum is continually recycled it's it's very much a sort of it's actually quite a good example of a a very well functioning

circular economy um so because these these projects that are being added this year are capacity editions they're pretty much all fully constructed the Platinum is needed for them is mostly mostly already purchased and it's pretty hard to see anything that's going to really disrupt things in just the last three months of the year so if we do have hard economic Landing I think the impact on Industrial demand is more likely to be felt in 2024 or 2025 and it's probably not going to be that

significantly negative it's more likely that we'll see some projects being deferred or delayed a little bit but ultimately they will still come on stream the important thing to bear in mind is what is what is platinum's role in industrial applications with the exception of the the glass and the medical industry it's predominantly as a catalyst so it's reducing energy requirements it's increasing yield and it's reducing emissions and so you know with that in mind it's pretty difficult

to kind of thrift it out of the system um so you know we think it's probably going to continue to to be very important and I guess the other thing to mention is over the last 10 years it's industrial demand has grown with a 5.4 kagger so roughly two times GDP so even with a Slowdown of GDP you know we think that continued it grossed in demand from from increasing the number of different industrial applications is probably going to be the an ongoing factor and the hydrogen economy comes into this as

well so electrolyzers for producing green hydrogen in our model they fit into other industrial demands and electrizers in Europe for example um the the the the targets that if you look at around 2030 you're talking about platinums about around 450 000 ounces a year just for the electrolyzers in Europe and that's out of a total platform Market of around seven and a half million ounces currently so the potential demand pulled from hydrogen in industrial applications is also um really quite quite substantial

okay so hopefully we have a pretty good look now at what's going on on the demand side for platinum I do want to touch on Supply as well so we said again all the way back at the beginning it looks like it's going to remain flat for 2023 and my question I guess is whether we are able to are producers able to ramp up that Supply if they wanted to or is this kind of the capacity that we have right now I think you know I think I think there's always opportunities to to improve and increase things

um it's going to be very difficult though so to look at what's happened at the moment we've got flat year-on-year mind Supply and flat year and year recycling Supply now mind Supply um maybe flat year and year but it's actually running at about seven percent below average annual production rates in the past and that's predominantly because of energy constraints or electricity constraints in South Africa so South Africa you have an organization called escom which is the state utility

power utility uh and eskom has just fundamentally been under resourced they've underinvested in the in the power infrastructure there and as a result you're having these tremendous electricity shortages so for the time being I think that's the main constraint on on Mine Supply the major mining companies there are all now being allowed to build their own Renewable Power Generation which will come on from sort of 2025 enormous that will help alleviate the situation to a bit but ultimately you can't run a smelter just

on renewable electricity you need some elements of grid power to operate a smelter so I don't think that that even just having their own Renewable Power Generation really kind of solves the issue and allows them to expand it probably just alleviates the the kind of current challenges that they're experiencing and then on recycling Supply that's been limited uh by combination of things we go back to the semiconductor shortage now because vehicle manufacturers were unable to produce as

many vehicles as planned over the last couple of years that resulted in a shortage of new vehicles for consumers so consumers were forced to run all vehicles for longer and that meant to reduced end of life vehicle supply to the recyclers so all of this sort of knock-on effect which is uh now coming through into into the into the um Supply demand equations added to that there is a um a scandal in the in the states at the end of last year the repercussions are still flowing through the systems from that which was a a group an

aggregator a spent also catalysts that was accused of dealing with more than half a billion dollars worth of stone and auto catalysts um the big FBI operation and all of the all of the smeltzers and refiners have effectively looked at themselves and gone we were buying this stuff that was a mistake we'd now goes to make sure we know exactly where every catalytic converter comes from and in their efforts to try and improve the problems of their scrap Supply they've just effectively really pulled back on virtue

sync because it's quite a difficult exercise so we're seeing recycling rates down between 50 and 60 percent year on year in North America which is also holding things back I think the recycling issues will get resolved they recycling will recover but it's probably not going to be enough to offset the kind of demand growth going towards okay very interesting the other thing when it comes to supply that I wanted to ask you about is these above ground stocks So reading the report it sounds like these

are not really easy to access and by the end of the year it will represent about five months of annual Supply so I just wondered how that plays int o what's going on with this Supply equation when it comes to plant level so with the deficit that we have at the moment and you know given that we've just discussed um uh effectively supplies very price and elastic and I would argue that the majority of demand is priced in elastic as well because if you if you don't use pgms on your platinum on your um on your on your

vehicle you're not going to be able to sell it because it's not going to meet registered you know the sort of um emissions targets so you know effectively um at the the uh the demand the users of platinum are kind of you know forced to buy regardless of of what the price is but that doesn't solve for a supply demand imbalance so in fact the imbalance we're seeing this year of just over a million ounces is being satisfied with above ground stops so our classification of that is kind of

unallocated material that's sitting around from overproduction in the past that is available to uh to the market and we've seen that this year you know so that the flow of above ground stocks has effectively kept the Platinum price pretty much range bound despite the deficits now obviously as the deficit goes on you're depleting those above ground stocks and as you mentioned by the end of the year we expect them to get to around five months of demand now that might sound like quite a big figure

but it is actually quite low from historical from a start from a historical perspective and added to that there's an interesting Geographic component to this so over the last three or four years China's been importing substantially more Platinum than it's needed and that means that a great majority of those above ground stocks now are now sitting in in in in China and as a result given that China classifies platinum as a strategic mineral it's very difficult to export at any platinum so effectively what we

could see is by the end of this year the rest of the world might actually be running down to critical levels of above ground stocks and won't necessarily be able to access even the residual five months or so that's sitting in China so it could put me for quite interesting market conditions yeah really that'll be very interesting to watch and you know you mentioned the price has been ranged about which is interesting to me because when you look at this supply and demand Dynamics you would think that this would

result in a high higher price so can you explain what's going on there why we're seeing Platinum kind of stuck at the the level that it's at I mean you know it's hard to give a definitive answer so I you know I'm going to theorize um that uh I think there's a couple of things so platinum's been range bound between 900 and 1100 effectively since the middle of 2021 and that's the sort of thing that a lot of these automated trading systems algorithmic Traders going to pick up on them and we'll build

into their models they don't even necessarily know what the underlying asset is they're just looking at the patterns in the trading and because the volumes they can put through it can become self-reinforcing so effectively that's been a large overlay and then obviously we've had these above ground stocks that have come into play and part of that has been going back to the semiconductor shortage again the automakers during the semiconductor shortage we're still buying the Platinum

they were contracted to and then since they started producing again we think we understand anecdotally that they have been running down those um uh you know those excess inventories if you like and uh and therefore kind of cut back on their purchasing so although in true Supply demand fundamentals we've seen this huge deficit in the first half of the year the market activity has been somewhat Modified by those um by that purchasing Behavior if you do the maths they should have pretty much run through those

inventories now so coming through the second half of this year we'll have to wait and see what happens and you know perhaps battling will begin to to reflect the the true underlying value okay yes definitely we'll we'll be looking to see if that happens so you know if if investors are looking at what's going on in the Platinum market and they're thinking maybe this is a sector that I want to get exposure to are there any special considerations that they should have because I think a

lot of people when it comes to precious metals are very familiar with gold and silver they might be a little bit less familiar about how to approach Platinum from an investment perspective the investment opportunities are pretty much identical so you can buy bar and Coin and there are also things like Platinum accumulation plans and of course there are ETFs that are listed in various jurisdictions around the world so um yeah I mean even if there is even the same Palladium if people are inclined to

to look at that as well but I'd probably stick to platinum for the time being all right and so we've been through I think a lot of the major things going on in Supply demand a little bit about prices here any final points you would leave investors with when it comes to plant numbers were heading into the rest of the year not so much maybe for the rest of the year but you know we have touched on on green origin per se and I think the the um the the thing that's really important to emphasize is how how important that

can be for future demand so if we roll uh you know the time uh forward uh into the 2030s I our estimates show the green hydrogen even on some very conservative assumptions versus you know various plans and government targets that are out there green hydrogen would end up contributing around one-third of all Platinum so really significant shift and that makes Platinum quite unique there aren't many Commodities that I can think of in the last 20 to 30 years where you've had a new emergent end source of

demand that can end up becoming say significant the closest I can think of is probably silver with the emergence of the photovoltaic industry um for Renewable Power Generation but aside from that yeah there are it's not often an entirely new End Market emerges and that's going to be you know I think a really important factor behind the Platinum Market through the rest of the this decade and into the 2030s and just to be clear when it comes to hydrogen is there a rule for Palladium there as well

or is this an exclusively Platinum thing it's there are some Palladium roles within it so um but it is predominantly hydrogen so platform road so platinum's used in the Electoral items for producing hydrogen and in the fuel cells for turning out hydrogen but combining with oxygen and generating electricity but the thing about green hydrogen is or hydrogen in general it's quite difficult to transport as a gas it's quite voluminous you can you know you can compress it and then you can liquefy it but that's all

very energy intensive so there are things called liquid organic hydrogen carriers which you know it's it's a so trips off the tone but Palladium as a role in effectively taking the hydrogen and putting it onto those carriers and then also dehydrogenating those carriers by extracting the hydrogen at the at the end points okay but it's not played in Market it's not going to be transformative like uh hot green origin would be for platinum okay that's exactly what I was wondering sorry to

send you down kind of technical little path there okay all right well this is really good thank you so much for sitting down to talk about what's going on in the Platinum Market we'll leave a link below if people want to take a look at the report but thank you for spending the time to tell us what's happening oh thanks for having me on Charlotte much appreciated of course and once again I'm Charlotte McLeod with investingnews.com and this is Edward sterk of the world Platinum investment

Council thank you for watching if you like this video make sure you subscribe to our Channel we'd also love to hear your thoughts so leave us a comment below we'll see you next time [Music] thank you