gold news

 [Music] I'm Charlotte McLoud with investing news.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 great to have you on again oh thank you for the invitation it's uh it's good good to take back great to have you here and we do have a lot to talk about today because the wpic just released its latest Platinum quarterly report so it does include an updated 2023 deficit projection it's not a whole lot higher than it was the last

time we talked but it is a little bit higher and what I was hoping you could do is start by reminding us about the supply demand Dynamics behind that deficit for this year yeah thank you um so uh we've got a deficit of um Just sh 1.1 million ounces projected for this year as you said it's a little bit deeper than um the one we spoke about back in September but um but broadly the there's some changes to the underlying um numbers but there's nothing uh there's no major surprises if

you like um so the uh I think the key point for this year is that it's very much a demand Ned deficit so um total demand is up 26% year on year um and that's led by 14% increases uh for both Platinum Automotive demand for platinum and Industrial demand for platinum uh jwy demand is more or less flat year on year and so the uh the remainder of the increase comes from positive investment flows which go after two years of net disinvestment so you know strong demand Le deficit but it's also worth noting

that whil it is mainly a demand story you know there are some things that are wor touching on the supply side as well so Supply is constrained um M Supply and recycling Supply both down around 9% versus long run um sort of output rates they are um pretty much flat year on year versus 2022 but 2022 was a year where we saw um uh you that Supply was was constrained we're expecting it to be constrained this year you know we'll get on to talk about 2024 but a lot of these Trends continue through to next year as

well U why is mind Supply constrained well a couple of things really firstly uh we had some planned maintenance this year um and then also uh the electricity shortages in South Africa created some operational headwinds for the producers there and that that was mainly a first half story so a lot of that's come come through there um in terms of recycling Supply uh there are some interesting things that that have happened there this year so we've continually dowal graded our recycling Supply estimates um

each course that we've put our numbers at and um I think it's there are a couple of reasons behind that so firstly uh there's uh an alleged offense that's occurred in in the US that came that was came to light in around this time last year actually when the FBI raided an aggregator of spent catalytic converters and arrested a bunch of people and effectively have accused them of dealing in more than half a billion dollars of stolen autoc cats now they're aggregating that material and selling on to the reciters

who' become you know concerned that they don't want to be complicit in this so they've got to have complete um Clarity and and visibility on the origin of the catalytic converted their recycling so you know working through how they do that has impacted their recycling rates this year on the other hand globally we're also seeing just generally a shortage of end of life Vehicles that's it that's that's holding back recycling Supply now that's kind of difficult to unpack because we've got

increasing new vehicle production and sales um but at the same time people are running existing vehicles for longer so I think I think there's a couple of things that play here firstly new vehicle production is going up uh it's coming it's a bit of a bounce back from the underproduction we saw through covid and as a result of the semiconductor shortage um but at the same time there are economic pressures uh on consumers that that um you know effectively are forcing them to run existing vehicles

for longer if they can't purchase a new vehicle and there are some lifestyle changes as well so postco people are driving less miles driven is down 7% in the US versus pre-co and people W go from homework um so existing vehicles are effectively lasting longer okay I think that gives us a pretty good grasp on current supply and demand Dynamics for platinum and there's a few points that'll go back and have some follow-up questions on but before we do that I want to look at 2024 as well because the wpic is now looking

ahead to next year and there's another Platinum deficit forecast for that period I think um about 350,000 ounces versus the over a million for 2023 so less but but still quite High it looks like so I wondered if you could talk a little bit about how the market is going to proceed into next year to create that smaller but still sizable deficit yeah so um you know I think quite a few of the trends that we're seeing this year are are flowing through to next year so we're expecting one Supply um to be up 2% year on year um so

will be flat really and that's just a lot of the oper challenges that are that are being experienced this year are continuing to next year there is some further scheduled maintenance as well which um which you know does have an impact um uh but um and and there are some challenges in terms of cost pressures as well because we're seeing the PADI the price of padium and radium have come down quite substantially over the course of this year and that's um you know just creating some challenges

at the top end of the cost curve for the producers um in terms of recycling Supply we have a 7% recovery in our numbers for next year and that's just assuming some of these challenges that is the recycling industry is facing this year begin to ease so we're assuming that there will be an increase in the availability of lended Life vehicles for example and you know those proof of origin um and provent uh uh challenges in in in North America um are kind of worked through as well but in terms of demand we've

actually got growth in demand for from the automotive and jewelry sectors so Automotive demand is up on um a continuation of platinum for plaum substitution in in gasoline vehicles it's also increased a little bit due to um tighter emission standards but then there's there's also a bit of a a demand increase that's associated with the drive chain mix so effectively we're expecting an increase in hybrid vehicle production so those are internal combustion engine vehicles that um you

know are either plugin hybrids or they are what we term mild hybrids that Harvest some of the energy that's expended in breaking in in um in decelerating the vehicle and then return it to the drivetrain when you're accelerating need that extra little bit of extra and that helps um uh you know effectively reduce emissions and reduce your your fuel consumption um now hybrid vehicles because they're turning the the the U the intell combustion engine on and off quite frequently they're

operating at a lower temperature than a straight A straight intell combustion engine vehicle and at lower temperatures the exhaust treatment system is less um efficient effectively so you to have 10 to 15% higher PGM ratings in order to make sure that those those um those vehicles are compliant with the emission limits in terms of uh the rest of the demand picture industrial demand is expected to be down 11% year on year one of one of the things I neglected to mention before is that 2023 is expected

to be a record year for industrial demand so whil it's quite a big step down for next year actually we're still expecting industrial div in 2024 to be the third highest on on record so you know actually still pretty strong um and then investment demand is still expected to be positive um but just down quite significantly from the uh from the investment law that we're projecting for this year so all in all you know that results in the in in the smaller deficit and is still a material deficit but it

is smaller than the record one this year um and so two is a consecutive deficit to something we think um you know should be quite interesting from uh from an investment perspective yeah it does sound really interesting and I know the wpic just released its 2024 Outlook but I wondered if if you started to look Beyond 2024 at all just just curious about if we'll see that deficit continue to balance out or if it may stay at kind of elevated levels moving forward so it's a good question so what we what we're um uh in

our quarterly we tend to only look one uh year ahead so um so 2024 was the one year ahead out look now in in effect even though we're still reporting on 2023 um and and those numbers are um are generated for us on an independent third party basis by a group called metal Focus who do the same for you know some of the other organizations as well but we do do our own research for years two to five and so we we do have projections that we published out to 2027 and I think it'd be fair to say that a lot of

the you know the features that we see um contributing to the deficits uh this year and in 2024 are likely to continue so I mean just picking a couple of uh areas of demand here Automotive demand as things stand at the moment and if Platinum continues to trade at a price discap to padium we think that substitution is going to continue to C to occur um in gasoline vehicles um additionally Tira emission standards mean overall higher loadings per vehicle and we we think the drivetrain is going to continue to go down the route towards

um you know increasing hybridization it just makes sense from a uh a Manufacturing uh capacity perspective really you're setting up new new manufacturing lines you know if you're going to do it for one geography you might as well kind of do it for all of them really um and then in terms of industrial demand a lot of platinum's uses in industrial applications are as a catalysts and those catalysts are important for um effectively increasing productivity and reducing energy requirements and

therefore actually reducing emissions and obviously that's a really really important uh benefit to the world are present so we see you know those those end use flat being sustained really even if we do have a very difficult economic outlook for what for the next couple of years um glass manufacturing is also another key industrial use of platinum and a lot of that is the fiberglass glass fiber markets where um the uh the the the um the product from from the glass fiber product is going into things

like wind turbine blades and lightweighting of of vehicles to improve um eff efficiency is particularly important in um you know battery electric vehicles as as aakers tried to compensate for the weight of the battery um and then just sort of looking at the you know the wind Market installed uh wind generating capacities expected to double between this year and 2030 so you know we can see therefore that there's likely to be quite significant demand for for for fiberglass going forwards and obviously that translates and

continued growth in the world for for platinum as well so a lot of these things kind of are likely to continue and added to we've got the the hydrogen economy which is very small today they growing quite quickly and if we think about the the um the subsidies that are available for green hydrogen they've gone from around $50 billion in 2021 to almost $300 billion today so you know just two years that's quite a significant change so we're we're confident that the Outlook uh for the

hydrogen economy um is is one of continued growth in fact actually Thea just a few weeks ago put out the their latest estimates of PL um hydrogen electri electrolyzer installations and that's up uh I think it's about 70% year on year for what was planned as of October um 2022 so there's definitely strong momentum there it's coming later in the decade prably but um but definitely the uh you know there is um there's a lot of a lot of uh sort of future demand growth potential for Hy

for for platinum all right and if we look a little bit more closely at some of these Supply demand Dynamics I wanted to touch on Industrial demand so you mentioned 2023 highest level hour and I think 2024 third highest level so that's quite strong and that's interesting to me because when I'm hearing about other Commodities and Industrial demand there's a lot of concern about recession is this going to impact demand and it looks like Platinum is kind of bucking that Trend so what is going on there

it's a good question and it's one that you know I think we we kind of have to have to have to answer really so um one of the big differences in Platinum versus other Commodities is for the most part with the exception of um a couple of industrial end uses it's not actually consumed so the Platinum capitalists are are ultimately recycled you get a little bit of losses during the manufacturing process of whatever is you're you're producing um but the ongoing Demand on a year-to-year basis is really just

topping up for um you know for for any small losses that are um during the manufacturing process the big demand pool for industrial applications is on new capacity editions so when a new glass fiber um manufacturing facility is being built or a new oil refinery you then you populate that facility with with um with platinum and that's the big demand pull in any given year now you know as I said I think you know the outlook for glass for example is is one where we've got quite um significant demand growth um expected

in wind power um for the next little while and that'll translate through Al into into new facilities being built and new platforms Devol come through and we think that the likelihood is even if we see an economic slowdown coming which is quite likely um that um that'll be followed up with uh sort of um stimulus packages from various governments around the world and as things down moment we think a lot of those stimulus packages are going to be oriented more towards the energy transition and ultimately you

know most of those sort of energy transition applications tend to be fairly positive for for FR demand so it is kind of buing the TR there are certainly risks we can't you know we kind of have to highlight that um but we think that the uh it's just in a better position as you as you said then L about the Commodities okay and the other demand side element I wanted to touch on was Automotive demand which I believe you mentioned was pretty strong in 2023 so last time we talked we talked about the buying habits I guess of car

makers and I think you mentioned if I'm understanding correctly they buy on contracts and in previous years that led to some inventory buildup so I wanted to check in on that how is that looking right now yeah so I mean you know obviously as a result of covid and the semiconductor shortage um the automakers effectively under produced Vehicles versus what they might have planned their output to be without those challenges um it's pretty difficult to kind of estimate those numbers but roughly we think it's about 33 million

light gy vehicles that were produced that they've been planning to produce um and yeah they continue to take delivery of their uh their their PGM um their their previously agreed PGM purchases under the take or pay off off take agreements and running down their for books and so on so I think what's happened this year is we've had We've Got This Record deficit it hasn't really translated into a price respones yet we think the reason for that is the automakers have modified their

purchasing plans this year just to reduce those XS PGM inventories in Platinum terms it's you know rough numbers probably around a million ounces um and so it's just taken the heat out of the market that would otherwise have being um extremely tight we think that process has largely run as corale it's very hard to say with high degree of certainty we think it has um and so as we looking through the rest of this year what's left of this and in 20 24 then you we would begin to expect the

underlying market dynamics of two years of Fairly significant deficit begin to translate into um begin to be reflected in the uh in the market price yeah I wonder if there's more that you can say on the price there so it sounds like maybe that's possibly the key to a price increase I know we also talked previously about how platinum's been stuck in kind of that 92 1100 range since mid 2021 or so yes I mean look we're still in that range um so nothing W has happen as yet but you know if you

think about any um I mean we don't give Price Forecast just because the nature the oranization that we are but if you think about any commodity that's in a in a deficit um that would you can't really have a deficit in in the commodity markets um so that the that you either get a price increase until you begin to get um Demand Being priced out of the market or you get to get a supply response Platinum Supply is we think very price and elastic um it takes a long time to build new operations have a high degree of

certainty in the operating environment you you know that that those operations are in um and those things just take uh you know you can't you can't have a quick response to to any kind of shortfall there short in the market um added to which of course platin isn't produced on its own it's produced alongside all of the other pgms um and some base Metals as well so when thinking about the economics of a new of of of a mine you have to take into account what's happened with those other

Commodities as well we've seen quite significant decreases in the price of padium and rodium um over the course of this year and obviously that has a bearing on um on future production plans for platinum as well in terms of uh what might happen at this point you know we think we think as I said that um the market should begin to reflect those underlying Dynamics there's still a lot of uncertainty on on the exact timing of that yeah and maybe we can touch a little bit more on the Mind Supply angle

because I think that's very interesting too so I know the report mentions it's really not back to those preco levels yet and there's there's actually downside risks into the future so maybe we could talk a little bit more about that I think it's particularly interesting how you started to mention you know what the companies are doing to make adjustments based on the prices of the other metals yeah so I mean if we look at um what's been announced I mean sabano storter for example um has announced

that they are looking to start the process of of potentially closing four operations two of them were pretty well bined out anyway um and then the other two I think is on is on probably economic grounds we haven't seen any further announcements from any of the other major producers as yet um Beyond um you know some State some public statements saying that uh you know the there are challenges that they are facing as a result of the Fall the the fall of the plum and rodium prices so to give some context to how how how

significant those Falls have been the basket price which is kind of aggregate of all of the um all of the pgms gold plus the base Metals um is down 40% year to date in US dollar term which is quite a significant um reduction in round terms it's it's a little bit less severe it's about 33% still quite a lot so look I mean I think um I think they definitely do have uh you know they are putting their thinking caps on trying to get a feeling for you know what they expect pricing to do over the next

little while and that'll feed into their into their future production funds all right and the other mind Supply angle that I wanted to touch on is okay so we have South Africa as the biggest producer of platinum they have their challenges such as electricity and other things that are going on we have Russia though as second biggest producer and one thing I don't think we've spoken about before is they still have their war going on with Ukraine I wonder if that has impacted maybe not production

but perhaps if their metal is getting to the market if people still want to do business with them in that way so I think um yeah the reality is that even if we won't to completely exclude Russian origin Platinum padium from from the global markets uh we you we just s we we just can't really and and there's just not enough alternative Supply to to replace the output that comes from that comes from Russia so just to give you some context to the scale of Russian out that it's about 11% of global Platinum

Supply but it's around it's over 40% of global Palladium Supply so given that there's an element of interchangeability between platinum and Plum particularly in automotive applications you know obviously what happens in the plum Market has a really significant bearing on on platum and and to a lesser extent vice versa so you know we think that Russian material is still coming to Market it's um no longer good delivery uh for the um you the bullion Market in in London um but if you're an industrial

or Automotive NGS or a platinum good delivery stat just doesn't really matter um I think probably one of the bigger challenges is given the the sanction on the Russian Financial system um is necessarily how as a consumer you might might pay for that Russian origin material is probably a little bit more uh challenging to to navigate um but ultimately we think we think material is still finding its way to Market I mean China has not obviously put in place the same sanctions uh that the West has against

uh against Russia and China is is the biggest Platinum market and the biggest gling Market globally so um you know for them it's a it's a simple um sort of solution for for Russian ra material in terms of finding a an alternative own customer yeah thanks for going over that I know that's kind of the theme for a lot of Commodities and and not just Platinum so that was good to go over I have one last point that I wanted to ask you about on the demand side and that's the investment demand angle so it looks

like it's set for a Improvement in 2023 then a pullback in 2024 so I just wonder if you can look at the Dynamics of what's going on in that case yeah so it's it's a combination of things so you can kind of divide investment demand into two broad categories so there's bar coin demand more retail oriented uh and then there's the um physically backed ETF demand which is typically a bit more oriented towards institutional investors so in terms of borrow coin demand this year has been it started off really

quite strongly um then weakened a bit through the middle of the Year we're seeing a bit of a pickup again now um looking into next year we are expecting um Bor coin demand to be a little bit lower uh and um that's just reflecting frankly just slightly weaker um economic environment and uh reduced uh consumer disposable income so just um there's Le there's less less money going around for people to apply to to to all all sorts of Investments including including Blackman um on the institutional side

and sort of pivoting to the ecfs we've got a higher for lower interest rate expectation now and so given that press FAL ETFs be they a gold ETF silver or or or platinum you know they're non-yielding assets so in a um higher interest rate environment um uh making an investment case for a non-yielding asset just has to be that bit more robust than um uh than it would be in a low interest rate environment so for platinum I mean we think it's a very compelling um investment case in terms

of sequential deficits and and how that's likely to to feed through in terms of um in terms of mar pricing um but I think it's uh you know for for a lot of institutional investors they're being pushed by their cios to look for yielding assets and so as a result we're expecting some outflows from the ETF for next year now that said we'll be kind of working hard as that world Platinum investment Council to try and get people to to to educate people on the on the deficits um and um and and what we think

is a competive investment case for for platinum even if interest rates are high long right and on that note as we're wrapping up are there any Final highlights from the report or looking into 2024 that you would leave investors with I think the key thing really is that we've got uh two sequential deficits and those deficits are coming from you know platinum's existing end uses um which uh you know are already pretty significantly important in terms of um you the environment and reducing harmful

emissions so problem ESG credentials are already extremely attractive then if you look longer term you're investing in the current deficit but longer term you get the significant benefit from the growth in green hydrogen that comes through in time so all in all we think it's a it's a unique metal it's going to remain within um the focus of the majority of investors um and we think the 2024 could be a pretty interesting year it does sound like it's shaping up to be pretty interesting so I think

that's a good place to wrap it up certainly we'll be checking in with you next year to get an update on what's going on thank you so much for coming on right now to give us an overview of the market well thank you for having me of course and once again I'm Charlotte McLoud with investing news.com and this is Edward sturk with 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]