PLATINUM QUARTERLY PRESENTATION Q3 2017 London 21 st November, 2017
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AGENDA: PLATINUM QUARTERLY Q3 2017, 2017 AND 2018 FORECASTS 1. Introduction Paul Wilson, CEO, WPIC 2. Platinum Quarterly, Fundamentals review Trevor Raymond, Director of Research, WPIC 3. Fundamental insights Trevor Raymond Beresford Clarke, Managing Director & Head of Research, SFA (Oxford) Ltd 4. Questions Paul Wilson Trevor Raymond Marcus Grubb, Director of Market Development, WPIC Beresford Clarke 3
AGENDA: PLATINUM QUARTERLY Q3 2017, 2017 AND 2018 FORECASTS 1. Introduction Paul Wilson 2. Platinum Quarterly, Fundamentals review Supply, demand and balance Q3 17 2017 forecast 2018 forecast Trevor Raymond, Director of Research, WPIC 3. Fundamental insights Trevor Raymond Beresford Clarke 4. Questions Paul Wilson Trevor Raymond Marcus Grubb Beresford Clarke 4
Q3 2017 SUPPLY: YoY AND QoQ WEAKNESS CONTINUES SUPPLY Q3 2016 // Q2 2017 Q3 2017 Refined Production 1,620 1,550 1,495 South Africa 1,180 1,090 1,075 Zimbabwe 120 125 95 North America 100 85 95 Russia 175 205 185 Other 45 45 45 Inc (-)/Dec (+) in Producer Inventory -105 75-10 Total Mining Supply 1,515 1,625 1,485 Recycling 510 480 480 Autocatalyst 315 330 330 Jewellery 195 150 150 Industrial 0 0 0 SA supply down 125 koz YoY and 10 koz inventory build in Q3 17 Total supply fell 140 koz QoQ (-7%) and down 60 koz YoY (-3%) Annual downward trend continues Total Supply 2,025 2,105 1,965 Source: WPIC Platinum Quarterly Q3 2017, SFA (Oxford) 5
MINING SUPPLY: DECLINE CONTINUES, NO INVENTORY DRAWDOWN Total mining supply and refined production No drawdown of refined metal in Q3 17 Furnace maintenance and other temporary factors impacted Q3 17 2014 strike effect aside, declining trend visible Refined production Total mining supply Source: WPIC Platinum Quarterly Q3 2017, SFA (Oxford) 6
RECYCLING SUPPLY: FLAT QoQ Autocatalyst and jewellery recycling Autocatalyst Jewellery Past fears of autocatalyst recycle growth did not materialise Changing mix of catalyst substrates potential headwind Jewellery scrap -23% YoY, high 2016 not repeated Source: WPIC Platinum Quarterly Q3 2017, SFA (Oxford) 7
Q3 2017 DEMAND: FLAT AUTO, WEAK JEWELLERY, INDUSTRIAL AND INVESTMENT DEMAND Q3 2016 // Q2 2017 Q3 2017 Automotive 780 850 785 Autocatalyst 755 810 755 Non-road 30 35 35 Jewellery 650 625 625 Industrial 460 405 385 Chemical 170 135 165 Petroleum 55 10 25 Electrical 40 40 40 Glass 60 50 20 Medical & Biomedical 45 70 45 Other 90 100 90 Investment 50 90-10 Change in Bars, Coins 80 70 45 Change in ETF Holdings -85 20-40 Change in Stocks Held by Exchanges 55 0-15 Q3 17 automotive demand in line with usual seasonal trend +1% YoY and down 8% QoQ Industrial demand weakness on plant closures and capacity expansion timings ETF sales driven by profit taking as platinum prices hit $1,000/oz in early Sept Total Demand 1,940 1,970 1,785 Balance 85 135 180 Source: WPIC Platinum Quarterly Q3 2017, SFA (Oxford) 8
koz koz Q3 2017 DEMAND: AUTOCATALYST DEMAND DOWN SEASONALLY Autocatalyst demand, quarterly 950 900 850 800 750 700 650 600 2,000 1,800 Q3'14 Q1'15 Q3'15 Q1'16 Q3'16 Q1'17 Q3'17 Autocatalyst demand, half-yearly Autocatalyst demand shows typical seasonal decline in Q3 17 (+1% YoY) Losses in Western Europe, as diesel share falls faster than growth in vehicle sales India auto sales recovering 1,600 1,400 1,200 1,000 H2'14 H1'15 H2'15 H1'16 H2'16 H1'17 H2'17f Source: WPIC Platinum Quarterly Q3 2017, SFA (Oxford) 9
Q3 2017 DEMAND: JEWELLERY DEMAND LAGGING IN CHINA; CONTINUED STRENGTH IN INDIA Jewellery demand Jewellery demand 625 koz in Q3 17, flat QoQ and down 3% YoY Jewellery demand growth and economic drivers China platinum jewellery demand lagging better jewellery market (gold jewellery demand +13% YoY) Pt jwl demand HK tourists Gold/Silver jwl sales India stock build contributing to continued strong demand despite weak jewellery market (gold jewellery demand -25% YoY) Source: Hong Kong Tourism Board, National Bureau of Statistics of China, WPIC Platinum Quarterly Q3 2017, SFA (Oxford), World Gold Council - Q3 2017 Gold Demand Trends 10
Q3 2017 DEMAND: INDUSTRIAL DEMAND LOWER ON NET FALLS IN GLASS AND PETROLEUM Industrial demand Net platinum demand was 385 koz in Q3 17, down 75 koz (-16%) YoY Weaker net demand from glass fabrication (40 koz YoY) and petroleum refining (-30 koz YoY) due to timing of capacity changes Source: WPIC Platinum Quarterly Q3 2017, SFA (Oxford) 11
Q3 2017 DEMAND: PROFIT TAKING IN ETFs, BAR/COIN DEMAND POSITIVE Investment demand by category Q1 17 Q3 17 net investment of 160 koz ETF selling in UK and SA, partially offset by buying in the US 10 koz coin sales in the US from sales of American Eagle proof coin, 1.8 koz of BullionVault net purchases in Q3 17 Bar and coin ETFs Exchange stocks Source: WPIC Platinum Quarterly Q3 2017, SFA (Oxford) 12
2017 FORECAST: MARKET IN BALANCE SUPPLY 2016 2017f YoY, oz YoY, % Refined Production 6,035 5,935-100 -2% South Africa 4,255 4,230-25 -1% Zimbabwe 490 440-50 -10% North America 395 375-20 -5% Russia 715 710-5 -1% Other 180 180 0 0% Inc (-)/Dec (+) in Producer Inventory +30 +35 5 17% Total Mining Supply 6,065 5,970-95 -2% Recycling 1,855 1,860 5 0% Autocatalyst 1,225 1,290 65 5% Jewellery 625 565-60 -10% Industrial 5 5 0 0% Total Supply 7,920 7,830-90 -1% DEMAND Automotive 3,415 3,365-50 -1% Jewellery 2,605 2,590-15 -1% Industrial 1,795 1,640-155 -9% Investment 505 250-255 -50% Total Demand 8,320 7,845-475 -6% Mining supply down 2% YoY despite inventory sales Automotive, and jewellery demand, areas of market concern, actually flattish YoY Fall in industrial and investment demand drives a 6% YoY fall in demand and balanced market Balance -400-15 - - Above Ground Stocks 1,895 1,880-15 -1% Source: WPIC Platinum Quarterly Q3 2017, SFA (Oxford) 13
2018 FORECAST: SUPPLY FALLING, DEMAND GROWING, MARKET IN DEFICIT SUPPLY 2017f 2018f YoY, oz YoY, % Refined Production 5,935 5,855-80 -1% South Africa 4,230 4,150-80 -2% Zimbabwe 440 450 10 2% North America 375 380 5 1% Russia 710 705-5 -1% Other 180 170-10 -6% Inc (-)/Dec (+) in Producer Inventory 35 0-35 -100% Total Mining Supply 5,970 5,855-115 -2% Recycling 1,860 1,900 40 2% Autocatalyst 1,290 1,325 35 3% Jewellery 565 570 5 1% Industrial 5 5 0 0% Total Supply 7,830 7,755-75 -1% DEMAND Automotive 3,365 3,335-30 -1% Jewellery 2,590 2,655 65 3% Industrial 1,640 1,790 150 9% Investment 250 250 0 0% Total Demand 7,845 8,030 185 2% SA refined production down a further 2% in 2018 as announced mine closures annualise Normalisation in industrial demand and increase in jewellery demand drive demand growth of 2% YoY Automotive demand only a small headwind Balance -15-275 - - Above Ground Stocks 1,880 1,605-275 -15% Source: WPIC Platinum Quarterly Q3 2017, SFA (Oxford) 14
AUTOMOTIVE EUROPE WEAKNESS, REST OF WORLD STRENGTH Automotive demand (koz) 2018 automotive demand expected to fall 1% YoY to 3,335 koz Change in automotive demand (YoY, koz) Europe UK a drag with diesel sales expected -9% YoY; moderate growth in Germany, Spain, Italy Demand growth in US, India and Rest of World Source: WPIC Platinum Quarterly Q3 2017, SFA (Oxford) 15
AGENDA: PLATINUM QUARTERLY Q3 2017, 2017 AND 2018 FORECASTS 1. Introduction Paul Wilson 2. Platinum Quarterly, Fundamentals review Trevor Raymond 3. Fundamental insights Trevor Raymond, Director of Research, WPIC Beresford Clarke, Managing Director & Head of Research, SFA (Oxford) Ltd 4. Questions Paul Wilson Trevor Raymond Marcus Grubb Beresford Clarke 16
AUTOMOTIVE PRICING MOMENTUM DIVERGING FROM AUTO MOMENTUM Car registration momentum vs platinum / palladium momentum US and China vehicle registrations increased more than Europe registrations since 2005 Palladium price increased more than platinum since 2010 Positive momentum in US and China vehicle registrations vs Europe are starting to taper Palladium vs platinum price ratio still at an all time high Source: WPIC Research, ACEA, OECD, Bloomberg 17
PLATINUM INDUSTRIAL OR PRECIOUS METAL? Correlation with copper, gold, absolute difference 2002-2005 2005-2013 2013 to date Precious metal with an industrial premium Industrial metal with a precious floor Precious metal with an industrial discount Correlation with copper (ex USD) Correlation with gold (ex USD) Premium / discount to gold (USD/oz) 0.27 0.21 362 0.37 0.55 323 0.23 0.61-125 Industrial vs precious metal price performance Platinum trading as a precious metal with an industrial discount High and persistent correlation with gold Lower, still significant correlation with copper Absolute discount to gold European diesel, electric vehicle headwinds driving industrial discount we believe these headwinds are overestimated Source: WPIC Research, ACEA, OECD, Bloomberg Platinum lagging other metals with industrial demand 18
SWITCHING HOW MAY IT HAPPEN? Platinum premium to palladium ($/oz) Platinum to enter gasoline autocatalysts? Price action has intensified speculation on switching Indicative timeline Scientific testing weeks to months Certification 1-2 years Change in PGM consumption from 3 years Change in PGM buying earlier Anecdotal evidence suggests European and US automakers are testing increasing platinum loadings on gasoline autocatalysts Market assumption that this may not be meaningful for 2-3 years we believe impact could be more near term Source: WPIC Research, Bloomberg 19
SWITCHING WHAT COULD THE IMPACT BE? Autocatalyst demand (koz 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Palladium Platinum W. Europe Japan North America China RoW Palladium demand is 2.6x platinum demand Small amount of switching could lead to significant impact on platinum market Scenario assumes: Platinum autocatalyst demand (koz) Scenario 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 + c500koz platinum demand + 20% N. Am + 5% W. Europe 2017 Base Scenario W. Europe Japan North America China RoW 20% of North American palladium demand replaced by platinum demand; 5% of European palladium demand is replaced by platinum demand* 1:1 ratio (i.e. 1oz of platinum replaces 1oz of palladium) Source: SFA (Oxford) Data; WPIC Research scenario. NOTE* Europe switching assigned a smaller %, given a proportion of European palladium demand is from diesel 20
PRIMARY SUPPLY: LARGEST CUTBACK IN A DECADE Mothballed existing and future platinum capacity koz 600 Pt Mine closures 1 m oz Partial closures 465 koz Shaft delays 550 koz Largest annual adjustment since 2008 1.47 moz 1.5 400 Mine closures Partial closures Shaft delays Cum. Pt (rhs) 335 1.0 200 0.5 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0.0 Source: SFA (Oxford) Ltd 21
1,640 1,795 1,790 INDUSTRIAL DEMAND: RECOVERY FORECAST IN 2018 Industrial Pt demand: 2016-18 koz 1,850 Chemical Petroleum Electrical Glass Medical Other 1,800 Almost back to 2016 levels by 2018 +90 1,750 1,700-155 koz (-9%) +150 koz (+9%) +25 +25 1,650-120 -35-10 -5 +5 +10-5 0 +15 1,600 1,550 2016 2017f 2018f Source: SFA (Oxford) Ltd 22
AGENDA: PLATINUM QUARTERLY Q3 2017, 2017 AND 2018 FORECASTS 1. Introduction Paul Wilson 2. Platinum Quarterly, Fundamentals review Trevor Raymond 3. Fundamental insights Trevor Raymond Beresford Clarke 4. Questions Paul Wilson, CEO, WPIC Trevor Raymond. Director of Research, WPIC Marcus Grubb, Director of Market Development, WPIC Beresford Clarke, Managing Director & Head of Research, SFA (Oxford) Ltd 23