VIDEO — Trevor Raymond of WPIC: Understanding Platinum Fundamentals

- August 2nd, 2018

Trevor Raymond, director of research at the World Platinum Investment Council, talks about platinum’s performance, supply and demand dynamics and more.

 

At this year’s Sprott Natural Resource Symposium, the Investing News Network (INN) caught up with Trevor Raymond of the World Platinum Investment Council.

Speaking about how the platinum market performed in the first quarter of the year, Raymond said it was a bit more promising than expected, but there were no surprises.

“We’re forecasting the current market to be in surplus for this year,” he added.

Looking over to demand, Raymond explained that a shadow still hangs over the automotive sector because of diesel issues in Europe.

“What we have seen is despite the very, very negative sentiment and the drop in diesel car sales, there still has been not as much of a decline in platinum demand for automotive use,” he said.

In terms of jewelry sales, China remains depressed, but India is looking quite respected. In fact, jewelry sales in India are up in the double digits again, Raymond added.

Meanwhile, investment demand for platinum has been impacted by low prices, which are largely linked to gold. But Raymond said that the WPIC has noticed large institutional purchases more recently.

“It’s quite encouraging to see that people are recognizing this as an opportunity, more than just a sort of dip in the price related to gold,” he added.

Platinum prices have declined more than 11 percent year-to-date, but Raymond said the low prices are unrelated to fundamentals.

“The opportunity is to see the fundamentals being recognized again,” he added.

Watch the video above or read the transcript below to learn more about platinum demand and supply dynamics, prices and what’s next. You can also click here to view our full Sprott 2018 playlist on YouTube.

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INN: We’re here at the Sprott show in Vancouver. What is your main takeaway so far?

Trevor Raymond: I think it’s always good to come to a conference where people care about natural resources, and this is pretty much a strongly gold territory. So, many people that own gold obviously have had a tendency to consider platinum, and it’s quite an opportunity for us. So, it’s nice to be here and see a lot of gold investors, and many of them that don’t own platinum. So, for us it’s a great opportunity.

INN: So let’s talk about platinum. Has the market performed as you expected at the start of the year? Any surprises?

TR: So, we’ve been around for three years. And what we do, is we provide a forecast out a year. We’re forecasting the current market to be in surplus for this year. The first quarter of the year was a bit more promising, but no surprises. I think we’ve had five consecutive deficits that have been ignored largely by the market, and the surplus that we’ve got is smaller than it was forecast last year. So, this year is looking a little better than we thought at the start.

INN: Talking specifically about demand, what factors have been impacting platinum demand, and do you expect that to continue in the second half? Will we see demand go up, down, remain stable?

TR: Good question. I think the demand for platinum is in four segments. Firstly automotive, secondly jewelry, thirdly industrial, and then finally investment. Obviously, the investment demand is what we’re trying to increase. Automotive demand, there’s a sort of a shadow that hangs over it because of the diesel issues in Europe. What we have seen, is despite the very, very negative sentiment and the drop in diesel car sales, there still has been not as much of a decline in platinum demand for automotive use. So, that’s been higher than expected.

Jewelry sales, China remains depressed, but India is looking quite respected. In fact, jewelry sales in India are up double digit again, so very, very interesting there. And then industrial tends to be a reflection of economic growth around the world… More things that are needed, more platinum used in industrial applications. But I suppose this year there’s a large strength in the industrial demand, mainly because of some recycling in Japan that occurred last year, and that’s largely over. So, industrial is looking particularly strong this year.

INN: And can you share your thoughts specifically on investment demand? Is that going to go up? What are you seeing right now in the market?

TR: Okay. Well, it’s my day job to make sure that it does go up. But what we’ve seen is there’s been some redemptions out of ETFs. ETFs are more visible immediately. We published our results on the first quarter, up until the end of March. And there, there were some ETF redemptions, but there were strong buying in bars and coins. What we still have is strong buying in the Japanese market. So, the Japanese market is the most mature physical market that have been buying bar and coins in that market for a very long time. So, bar demand seems firm, which is kind of natural at the low price. ETF demand, fairly stable, but still being affected by the anti-diesel sentiment. So, I think the low price largely linked to the gold price, has made some investors become a little bit weary. But on the flip side of that, we’re engaging more institutional funds around the world, and we have noticed large institutional purchases more recently. So, it’s quite encouraging to see that people are recognizing this as an opportunity, more than just a sort of dip in the price related to gold.

INN: There’s a lot of talk about the use of platinum in fuel cells that are used in electric cars. What are your thoughts on that, is demand going to increase in that sector?

TR: So, I think what’s been encouraging in the last few months, is that there’s been a greater recognition that the fuel cell vehicle is actually likely to happen. There’s been a lot of skeptics saying the fuel cell vehicles won’t happen, it will be battery, and almost suggesting that there either will be battery or fuel cell. What we think has become more apparent, is that if you look at a battery vehicle and you look at a fuel cell vehicle, about 80 percent of the platform is identical. And right now in the world, I think there is over 300 battery electric vehicle models available. Penetration hasn’t gone up, much, from about 0.8 percent to 1.2 percent.So, those battery vehicles are not really making money, and aren`t penetrating.

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However, all the massive investment that has gone into them has boosted the fuel cell platform, and the only difference between the two is the hydrogen tank and the fuel cell. So, it’s been quite encouraging that more people are recognizing that the future mix in the power train will contain a lot of battery vehicles, but it certainly will contain fuel cell vehicles. And you only need 6 percent of your vehicles on the road to be fuel cell, to almost double automotive demand for platinum an extra 3 million ounces. So, I think that that recognition has been quite welcomed, that people are starting to realize that certainly, fuel cell vehicles will make up future demand.

Then just in terms of the overall global fuel cell market, I think the estimate was about 40,000 ounces last year from Johnson Matthews, and that could be as high as 70,000 or 90,000 ounces this year and next year. So, I think although fuel cells are very small, the amount of ounces is encouraging. And then we think heavy duty vehicles, there is a vehicle that uses fuel cells to transport containers to warehouses. And in some of the US ports, there’s a 100,000 trips a day and poor air quality. So, we think putting hydrogen in a port in heavy duty trucks, will drive the platinum demand, and that the fuel cell electric vehicles, the cars will follow suit.

INN: Looking over to supply, is there any specific geographical areas where we will see supply increase this year, or we will continue to see a supply decline in platinum?

TR: That’s a good question. So, in terms of supply, over 73 percent comes from South Africa, Southern Africa. Between South Africa and Zimbabwe it’s nearly 80 percent. And remember the rest of the platinum supplied around the world is largely as a by-product. A by-product of nickel in Russia, and a by-product of palladium in North America. And those production tend to be fairly stable. So, the nickel markets, the nickel price is stable, and that output from Russia at very low cost all body is stable. So, no, no changes outside. South Africa has remembered decline in 10 years from over 5.2 millions ounces a year, to 4.2 million ounces a year. So, the reasons behind that decline in South Africa are largely the rising real costs, labor 60 percent of costs, and it’s going up more than inflation, and significant capital underinvestment in those mining operations. So, we don’t forecast more than a year out. The forecast for this year is lower production than last year, but it does appear that it’s constraint supply, and difficult to produce in South Africa.

INN: Then in terms of platinum prices, what have you seen so far, and what is your outlook for the rest of the year?

TR: So, platinum is undervalued in our opinion. If you have to go back to compare platinum to gold, you need to back to the 1980`s to find a point where platinum was this cheap against gold. It doesn’t seem appropriate. The other things is that it’s cheap against itself. The last time that platinum was at these price levels it nearly doubled on two occasions. What we do see, is that most people are still tending to ignore the fundamentals of this market, and are trading on sentiment. And a lot of the trading is linked to the gold price. So, if you look over the last few weeks some significant dips in the gold price, those same dips in the gold price were mirrored almost identically in the platinum market. So I think at the moment, our job is to get more people to recognize this metal and value it on its fundamentals, but at the moment we are finding that the current low prices are unrelated to fundamentals. So, the opportunity is to see the fundamentals being recognized again.

INN: And my last question for you today, for the investors that are watching us. In your opinion, what is the one mistake they should try to avoid if there are interested in jumping into the precious metals market?

TR: Okay. So, we’re not regulated, so we can’t give investment advice, just to make sure for your viewers. But I think the important thing to is sit out the difference between sentiment and fundamentals. We publish, as Johnston Matthew has since 1975, supply and demand fundamentals. Have a good look at them, look at what Johnston Mathew publishes. There’s a lot more information. We think we’re trying to make this market clearer and more easy to understand. So I think do your homework, look at it thoroughly, but be aware that sentiment in the gold price are definitely influencing factors. And as we know in all commodity markets, fundamentals tend to win through in the longer term.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in contributed article. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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