Questions and Answers

Transcription

1 Questions and Answers Thanks very much, Beresford. We will take some questions now, if you can send them in. A few have come in already. I think the presentations are a bit more bullish on palladium than on platinum. The first one, which I will ask Henry, is an autocatalyst question and is: Which PGMs will be used in China in heavy-duty diesel catalysts? For heavy-duty diesel, based on the technology we are talking about with major OEMs today, many will be platinum and palladium, so that is two major, Pt and Pd. So far, that is the technology we are talking about with the OEMs. The next question is for Beresford and relates to one of the slides. It is about how China s imports of palladium are much, much lower than the demand from the auto market. Where does the rest of the palladium come from in China to meet the gap? As I said before, a lot of it is coming back from jewellery. An exceptional amount went in and, as I said, speaking to the recyclers there, they have been taking a lot of jewellery in over the years at a ratio of around about 2:1 to platinum currently, but it was much higher in the past. Also, up to about two years ago, the rule was that you could buy a car, you could drive it out and you would not necessarily have to keep the catalyst on the car, so potentially a lot of catalysts came off some of the earlier vehicles. It is very difficult to measure palladium recycling in China, but potentially there was quite a bit of a bubble in palladium recycling earlier on, which has helped to supply the market internally. Thanks. One for you, Huw. It is about the difference between the platinum price compared to gold and what is the optimal level between the two of them for jewellery demand. Is it different in the different Asian markets? Your insight into that, please. It is a question I often ask the trade when I go around: what would, to them, be an ideal platinum price? The answer that tends to come back is somewhere in the region of platinum trading above gold at about $200 to $300 an ounce. Most of the trade would prefer to see that scenario, but with a gradual increase as opposed to that kind of volatility that we saw prior to Okay, thanks very much for that. Beresford, one for you as well on the palladium price. From your presentation, you are quite bullish on palladium. Would you like to give us a level or a range you would like to see or you would not be surprised to see palladium at over the next, say, five years? 1

2 Okay. Yes, I realise that it was in the title in the book, but I was probably quite short on time to go into it. Assuming the status quo in terms of the macroeconomic outlooks that are regularly published, the outlook for vehicle production that most of us have in our models, then it would not be surprising if palladium headed towards $1,000 by Probably more importantly, there is increasing justification for a closer to 1:1 ratio in terms of platinum and palladium prices going forward, but obviously there is a huge amount of risk in that: where are gold prices going to go? Where is the rand going to go? What is going to happen as regards to potential global recessions along the way? Okay, thanks for that. The next question is for you, Henry. What are your expectations for battery electric vehicles in China and how does that fit with the outlook for the auto demand for PGMs? As I said earlier, pure battery electric vehicles, based on the government plan, would be around 8% of the total vehicle production, but most people have probably heard about VW s plans. It is talking about 20% of its total vehicles being pure electric cars by That is their plan, which may change the industry landscape to a certain extent, but I would say some of the industry people are also very optimistic about that. However, given the infrastructure constraints, the battery issues and other things, if you put all that together, probably roughly 10% is the maximum by That would not change PGM demand that much, given the HDD for the China 6 demand for PGMs. That is my picture. Okay. There are a lot of pricing questions here, but one for you, Kate, is: Will the platinum price ever rise above $1,500 again? Kate Harada From our experience and as I mentioned, price fluctuation is a very important factor to public buying. From our experience, whenever the customer or the general public focuses on a certain entry level, whenever the price moves more than 8% or 10%, they come in, but if the price holds at a certain price level, everyone starts to forget. It is not a matter of the absolute number of the interest, but, of course, whenever there is a big figure change, it triggers market interest. Thanks. In many ways, Huw s business, the jewellery business, wants stable growth in the platinum price over gold, whereas you want more volatility in your business, Kate. There is one here and I do not know who should answer it. If Trump gets in, will that be good for platinum investment in Japan or in general for the platinum price? Any takers on that one? Huw, do you want to answer that? I find it difficult to answer while remaining politically correct. 2

3 Okay, we will move on from that one. Will the tradition of gift-giving remain in Japan? Kate, you can answer this one. Kate Harada Of course, yes, it does. As we mentioned, gift-giving is one of the very good factors and inheritance is another factor, of course. As you know, Japan is an ageing country, with most of the wealth existing with the elderly people, so how to hand this over? Of course, we are not trying to encourage tax evasion or something, but still precious metals are a very good vehicle, especially coins. We find that coins are a very easy gift to give to siblings or offspring, friends or relatives, so still it does, especially coins. There is one here for you, Henry, and it leads on from a comment Beresford made. Are Chinese vehicles now inspected for catalyst-fitting and for efficiency as well? I guess this question is more on the compliance issues. Now, yes, and any development samples for the catalysts need to be sent for EPA for checking, so that is now addressed. Are they checked just when they are fitted or are they checked one year or two or three years later, etc.? They would not be checked when they are fitted, but they are checked before they design the system. Is there an opportunity to check the catalyst after it has been sold though? Today, yes, but when China goes to China 6, so we are talking about RDE, by then that problem will go away. Okay. Beresford, here is one for you. Do you see PGM loadings on catalysts increasing as emission standards get stricter? That is almost one for Henry, but that is a debatable point. In the past, particularly up to Euro 6, we certainly had increasing loadings. Euro 6, maybe a slight increase, but as Euro 6 moves on and gets more and more complicated, and we move towards real-world driving, arguably catalysts are getting packaged small and much and closer to the engine. They need to operate much quicker when you start your engine, get up to temperature very quickly, and there are multiple options, as famously Peter Duncan covered in his presentation last year. There are so many different options for adhering to standards in 3

4 terms of different catalyst bricks that you can meld together, but the net result is probably that loadings are going to reduce slightly rather than increase. The only positive thing I saw, which came out yesterday and was kind of a fallout from Paris, was that the major auto manufacturers in Europe, trying to adhere to real-world driving emissions standards, are going to struggle with the extensive engine downsizing that they have done over the years, such as VW s now the Golf is like a one-litre turbo and so on. We are dropping below the one-litre mark and many of the manufacturers announced that they are going to reverse that trend and we are looking at sometimes between a 10% and 20% increase in engine sizes. Obviously, that should lead to increased PGM loadings just on an engine size basis. Thanks. Henry, there is one for you. Could you give us your view on fuel cell cars in China? That is still in the early stages. I do not see many developments for fuel cell cars in China so far by Chinese OEMs, so what is the endgame for the vehicles in future? Still people are talking about how the endgame will be the fuel cell, so it depends how long a time it will be and how the fuel cell technology itself will be developed. Kate, one about ETFs: Do you think there is any possibility of them working in China? Kate Harada I am not the right person to ask, probably. What do you think? Well, it is more of a physical market. We used to have that ETF in Hong Kong, which I remember hovered around a thousand or so ounces and then quietly disappeared, so I do not know that it has potential. It is more of a physical market, it strikes me. Beresford, you touched on this earlier. Is it thinkable that palladium can trade at a premium to platinum in the near term for a sustainable period? Sustainable being the key word there, I think, if it gets there. The word near-term as well suggests that it is going to rise very quickly and there is a bout of major volatility that you are looking at there. The other thing to remember is that automotive palladium demand as a percentage of total demand has been rising very rapidly from a very low base. Back in the 1990s, it was 8%, now it is about 77%, and in the next couple years, it is going to be 80%. We just have to remember its sister metal rhodium, which is almost an automotiveonly metal. Palladium is heading into that territory of being a one-trick pony whereby any announcement in the automotive industry as regards technology change, changes in loadings or from any of the fabricators or whatever can have a major impact on the palladium market and, equally, the US and China, obviously, as well. In the near term, based on that question, on those specific terms, I do not think so. It will be for a very short period, up and down, boom and bust. 4

5 Huw, one for you. With the challenge that the Chinese market is having at the moment in luxury goods, what else can the PGI do besides what is in its present plans to stimulate more growth there in platinum jewellery? The biggest opportunity in China for jewellery at the moment is to expand more rapidly in the tier three and four cities. These are cities that are rapidly developing their middle-class populations, so you have new consumers coming on board. If we can be in there creating a cultural imperative for the exchange of platinum jewellery, that will put us on a good direction for the future. That is where the volume is going to be in the future. We need to be out there building that business in those cities. Thanks. Beresford, for you, two questions that are linked. The first one is: How big are known PGM reserves globally and what is the effect on price? The second question is: Why are we seeing price weakness in the PGMs if there is such a deep deficit in platinum and palladium? Okay, right, some sidewinder missiles coming in now. Reserves are huge in PGMs. We only have to look at Russia where there are still huge untapped resources, potentially some projects you could bring on producing 700-odd thousand ounces of platinum and maybe up to a million ounces of palladium. Norilsk came out with a classic comment in May in one of its statements that it basically has to spend a billion dollars just to stay still. Bringing on these reserves are hugely capital-intensive and, at this point in time, with the fragility in the financial markets, raising capital for these projects is going to be extremely difficult. Equally, in South Africa, there is still a huge amount of reserves, obviously some getting quite deep. The northern limb and Zimbabwe with lots of potential, but again it is a case of raising capital first of all, but also PGM prices currently are just not high enough to incentivise it. Why are we seeing price weakness in the PGMs, despite such a deep deficit in platinum and palladium? I did not show a deep deficit in platinum. As I said, platinum has lost out a bit since the financial crisis and I tried to show that on a regional basis. On a pure basis, it has been in surplus since 2008 for a number of years. Obviously, in 2014, we de-stocked quite a bit with the strike in South Africa and the sort of deficits that we are talking right now are very narrow in the big scheme of things. We still have a lot of metal to draw down in the platinum market. In the palladium market, as I tried to suggest, there is just a huge amount of metal out there that has become more freely available. In the early days, when we had that spike to over $1,000 an ounce, the bulk of the stocks were held in Russia and were obviously more difficult to get hold of at that particular point in time. Ford panic-bought and we had the famous Tiger Fund squeeze in the palladium market, sending it over $1,000 per ounce. At this point in time, everyone has learned from the financial crisis. Everyone is so much smarter about buying their metal. The metal is more freely available, it is held in multiple locations, it is not just in Switzerland anymore, it is not just in Russia. Equally, the automotive companies pre-buy a lot of their metal in the year before or they hedge their requirement, so it is very difficult to put a squeeze on the market at the moment or send 5

6 prices higher. Obviously, then we are trading on sentiment as regards to what is going to happen in China. The slowdown in China, the bubble that burst on the stock market in China had a huge impact on the palladium market it really killed the bull case temporarily. Concerns about auto loans in the US flatlining vehicle production, potentially, coming off will we have a recession in the not too distant future? and, as I said, a slowdown in China could keep prices a bit lower for longer. Okay, thanks very much. We probably have time for just one or two more questions. One for you, Huw. The demand for men s jewellery is high in China. What about in other Asian countries? Men s jewellery in China is something that we are looking at. There is a lot of chain product. If you look at the absolute units of platinum jewellery sold in China, chain is up there second to rings. In terms of other Asian markets, the Gulf states we are looking at. We are also looking at, basically, any country where there is a significant Muslim population, because the original insight behind the Indian development in men s jewellery was because Muslim men cannot wear gold. If they are looking for a precious metal, at the moment, they can only wear silver or they are buying expensive watches as the primary piece of jewellery. We think there is a huge opportunity to expand platinum into countries in Asia where there is a significant Muslim population and then it will permeate into the mainstream. Thanks for that. We have not gone through all the questions, but we have come to the end of our sessions. It just remains for me to thank our four speakers very much for their excellent presentations and thanks to the audience as well for listening. Thanks very much. 6