You're listening to Strictly Business Podcast with Lindsay Williams.
The charisma of commodities has been evident in recent months with the CRB
index flirting consistently with
multi-year highs.
But some commodities have been more charismatic than others with gold taking a
bit of a breather after a glistering rally, but PGMs,
that's platinum group metals, taking over on behalf of precious metals.
And there's so much more as well.
With me to discuss these and more.
is George Cheveley, portfolio manager at 91 in London.
It's been great fun, hasn't it, George, watching these commodities, watching the
dollar pulling and pushing them around.
It's been great.
Yeah, I mean, it has in many ways.
I mean, in some ways, it's life as usual in commodities.
You know, you see with various commodities, nothing happens for a long
while,
and then suddenly they appear to move almost on very little reason, but
actually...
When you delve into it, you know, actually, fundamentally, things have
changed.
But yeah, I think with Trump and tariffs, you know, it's certainly been a very busy
period.
I think there's also a huge amount of noise, which is confusing people, but also
providing opportunities.
You said fundamentally things have changed.
What do you mean?
Well, let's talk about platinum and palladium.
The interesting thing there is in many ways we've been looking at deficits in
these markets now for two or three years and the
prices have hardly moved.
I mean, platinum stuck at around $1,000 an ounce for a while now and suddenly we've
seen a sort of 40%
move in two months or so.
And everybody says, well, how did that happen?
The fact is we were sort of running a deficit.
Things were tightening slowly.
And then, you know, a couple of things happened and suddenly the price moves.
And quite often that happens in commodities.
You sort of feel they should be moving up.
Things are getting tighter.
Nothing happens.
And then suddenly it all happens very quickly.
Yeah, it's interesting, isn't it?
There's a theory that when a market goes sideways like that, people get very
complacent.
And sophisticated traders will be having call options and put options.
above and below the recent range and all that sort of thing.
And then suddenly when the market starts to get a bit of life and break out of the
recent range, they have to scramble for cover.
And then suddenly people start to take notice.
But the fundamentals are there.
I wanted to talk to you about the PGMs because of the recent move that we've had.
I think from May when it was hovering around 900 to going to close to 1500 in
record
time, pulling back a bit now to 1250 to 1300.
But never mind, something seems to have changed.
Can we start with the demand side, please?
Yeah, well, there's two important bits of information that really have come to light
this year, which really then,
they were the catalyst, really, I think, for this rally.
And both out of China, always China is important in these markets.
The first one was Chinese regulation on cars.
So the Chinese, obviously...
Going to electric vehicles, which has been seen as very negative for platinum and
palladium because you don't need them,
because you don't need a catalytic converter in an electric vehicle.
But actually, what we've seen even in China is people wanting hybrids as well
for range reasons.
And in a hybrid, you need just as much PGMs or you should need just as much as a
conventional car.
What has been happening in China, though, is car companies have been thrifting.
is probably the euphemistically way of putting it.
So they've been putting in less PGMs and hybrids than maybe they should be.
And what's happened this year is the regulator in China has started to crack
down and say you need to test your vehicles properly.
You need to actually meet these regulations.
In some ways, it's sort of China's version of Dieselgate we have with VW, you know,
making sure they're doing the right tests.
So that has come through this year.
So the implication is they will have to increase the amount of PGM loadings in
those cars.
The second thing that's happened is actually because of gold.
So gold prices have obviously rocketed this year.
We've seen them trading above 3,000.
What has happened in China is jewelers, you know, the quote was given,
if you go back to December, there were three.
um wholesale platinum jewelers in shenzhen which is the center of the jewelry
industry in china yeah by june there
were 14 because platinum was the third the price of gold so jewelers were wanting to
you know help their margins
people were finding gold expensive they've increased the amount of platinum jewelry
and platinum in their jewelry and
that's also now having seen platinum's use in jewelry decline we're starting to see
that reverse so both of
those you know, have happened this year and come to light.
And that's essentially sparked this rally in platinum prices.
But one that really was coming because...
We've been running a deficit for a number of years and inventories have been slowly
drawing down.
So these catalysts, plus the fact inventories have come back, has really
sparked this rally.
It's the perfect storm, isn't it?
Talking about cars, I saw an ad for a very smart British car,
very high end and, you know, the sort of one that smart people take their children
to nursery school in North London.
And it said very proudly, 74 miles.
pure electric and it was a hybrid and I thought 74 miles doesn't sound like a lot
to me so it's good it's a good
job it's got the hybrid factor as well now when it comes to the the gold rally
helping the platinum rally in a way is
there also a ratio being played by expert traders and hedge funds well I think I
mean people talk
about the gold silver ratio not so much a gold platinum one I mean,
ratios are things people trade when there's nothing else happening, I think,
to some point.
You know, they say this is extended.
It's a technical trade, I would say.
I think here we've got fundamental moves.
You've had gold obviously driven by central bank buying, weakening dollar.
You know, these things are supporting gold and even driving it higher.
And actually, a lot of traders will tell you when gold moves, platinum and silver
will follow.
And again, you go, well, is that true?
It's been true this year, certainly.
We saw gold move, you know, early this year or certainly through the year.
And then second quarter, platinum and silver have both moved quite suddenly.
And it isn't, you know, it's not just an anecdote.
It is because that jewellery factor comes in.
You know, people say I need to, there's some substitution happens if they're a lot
cheaper than gold.
Fascinating story, that jewellery one, actually.
And I wonder if it develops.
um what about the supply side over the last couple of years the south african pgm
mining
industry has been characterized by headlines such as you know 1200 people
offered
redundancy this
mine being this shaft rather being mothballed and all that sort of thing and
it
wasn't just an isolated event It was across the industry.
And now suddenly, as you said.
The stockpiles are low and production's not what it was, which is the case.
Do you think they'll start to ramp up production or will they hold back?
And as the new CEO of Valterra said, we're not at the point where new production can
come on stream yet.
No, it's the simple fact that the industry has been in decline because demand
prospects,
you know, have looked bad.
If the world is moving to EVs.
You can debate how fast that happens, but it's still happening.
That is clearly poor for platinum and palladium demand because the major use for
palladium and a big use for platinum is in
catalytic converters.
And if you're sitting there deciding whether to build a new mine and your long
term forecast is the world's moving
TVs.
That's not going to make a great case for building a new mine where you've got to
invest a huge amount of capex.
And if you're saying, I don't know in five years time what demand will be or where
the price will be, it's pretty off-putting.
And that's been happening already.
And today will continue to happen.
So I think we're in a position where if you look at supply forecasts, they're
still declining over the next five years.
And in a sense, the market is now going, well, if we don't see demand decline as
quickly as we thought.
that leads a very tight market.
But yeah, it's still, you know, to bring on a new mine, even reopen an old one,
you can't do it in one or two months.
You might say price is high today, but you've got to be confident that price is
high in five years time.
It's still hard to say.
What it does mean, of course, is in two years time, prices could be a lot higher.
Let's move on to other commodities now.
I don't like the way that certain people have played fast and loose with the copper
market.
One day it's up 20% the futures market in New York and a couple of weeks later it's
down 20%
for various reasons.
Is it worth talking about copper briefly?
Yes, no, I mean, copper is fascinating.
And what's amazing is, yeah, you look at the COMEX price, and obviously with
tariffs, we've had this amazing, you know,
increase and then collapse this week.
LME price has not moved.
London Metal Exchange prices almost stayed at 9,700 and hardly moved.
I find the reaction yesterday when all the shares sold off is slightly baffling
because, you know, Three months ago, two months ago,
when Trump said there'd be 50% tariff, everybody said, well, that's bearish
copper demand in the States.
It's, you know, it's going to be difficult for copper.
They then come out and say it isn't a 50% tariff on copper, it's only on products.
And people say, well, that's bearish for copper.
You know, it can't be both ways.
And I think actually the fact that, you know,
the US can import copper without a tariff is actually means there'll be less demand
destruction.
The fact is a lot of copper was moved ahead of the tariff.
I don't think it's coming back out because there might be a tariff in a year and a
half.
They've said that.
And in any case, it costs a lot to move.
So I think that copper remains there.
They've actually said they're going to limit scrap exports, which will take
copper out of the world market.
And today, China and Europe have no copper stocks because it all went to the States.
So I'm pretty positive on copper.
I think unless demand collapses, and I don't see a reason for that at this stage,
I mean, China needs to continue.
I think it should be okay.
I'm actually pretty positive on copper prices.
And I think in a way, now the tariffs certainty is there, at least on copper,
and increasingly on the country tariffs.
I think businesses will make decisions and do things and activity could actually pick
up because certainly there's been a lull this year,
people saying I don't know what to do so actually I I think we can see a strong end
to the year.
And copper stocks are not great, except in the States.
Everywhere else, there's nothing.
Where else should we go?
Maybe oil, because oil has gone from 60 to the high 70s, floating around 71,
72 at the moment.
It's been bombarded with stimuli, hasn't it?
Yeah, I mean, look, I mean, oil has, in some ways, you know, with OPEC bringing
back...
production and cutting their capacity cuts in a way.
And obviously that in August, we get the next increase in production from OPEC.
I mean, it's difficult to be super positive oil.
It's clearly been supported by geopolitical risks, Israel, Iran,
things like that have obviously had an impact on prices.
And obviously seasonally, we've got driving season in the States, refined
products have been strong, gasoline in the States.
If you look forward into the shoulder month, September, October, with OPEC
increasing,
it's difficult to be very bullish oil in the short term.
But if you look forward into 26, you know, shale feels like it's peaking now in the
States at these prices.
It doesn't make sense to bring on more.
The producers there are saying, you know, they're cutting development.
So I think we can see a plateauing,
even a fall in shale oil and with OPEC capacity now not being held off.
I think actually it sets up for quite a constructive 26 in the oil markets, but
it's not today.
It's still six months away, I would say.
Any other commodities that have caught your eye over the last few months, George?
I think, I mean, there's been an interesting and slightly counter-seasonal
rally in iron ore,
which really was a sort of slight surprise.
I think it was really because of China's moves on infrastructure,
the announcement of the new dam and also their anti-involution.
where they said we're going to hold back capacity, which increased steel prices in
iron ore.
It feels actually that's a bit of speculation and probably we expect iron
ore to settle down,
though we still believe it should trade around $100 longer term.
But I think it probably could be, you know, softer going forward.
And the other place where we've seen, you know, quite strong turnaround off the
bottom is in fertilizers.
And that's been, you know, potash prices, et cetera, have started to move up.
continue to perform quite well.
I mean, certainly coming out of a cyclical low, but that's also been an interesting
area this year for us.
I'm just looking at something that's just popped up on my screen.
It says Baltic Dry for the month up 37.38%.
That's a shipping index, of course, and for the year up 20%.
Is that indicative of a bullish aura around commodities at the moment?
Yeah, potentially.
I mean, I think we're, you know, clearly tariffs,
what's been happening at the States is changing supply chains quite radically.
And in a way, we have to remember that whatever you think it does for demand
inflation,
this complete change in trade and supply chains is going to lead to more
inventories being held around the world.
So we've suddenly got more copper inventories in the States.
I don't think they disappear overnight.
and that That need to rebuild inventories from a world where everything was just in
time is actually underlying quite positive for a number of
commodities, because clearly that means you need more supply just to fill those
inventories.
Let's have a look at a couple of the commodities that we've spoken about and
see how to take advantage of any perceived moves.
We started with the PGMs, and I can't help but think when I see
Impala Platinum on the JSC Securities Exchange in Johannesburg being up.
100 and something percent that it's it's difficult for an investor to look at it
and say I must buy that now I should have
bought it a month ago but let's not talk about particularly the South African
miners
but generally speaking would you be bullish of the white metals and if so how
would you take advantage of that bullishness
well no I mean you know particularly in the smaller markets you see a lot of
volatility.
And I think...
You know, I think, though, you have to be careful.
We see platinum palladium prices move, you know, very sharply in the last two months.
And as I say, the reaction is, oh, that's a bit overdone.
And, you know, how do you justify that?
You know, how can they suddenly be 40% higher?
My point about fundamentals is that's been three years in the making.
The fact it moved in two months shouldn't put you off.
And I remain fundamentally quite positive those metals.
Now we've had a pullback here.
That's trading.
But you have to look through this noise to maybe, you know, if you want to get
involved, you can't look at what it's done.
You need to look at what it will do.
And maybe you time your purchases, you spread them out.
So you're not always, you know, you're not always going to pick the wrong price.
That's always the way you have to play these.
But you also have to be prepared to sit with the volatility and you have to be
prepared to look through it.
We've had a huge amount of noise this year, particularly from Trump and his
tariffs.
Actually, the underlying fundamentals haven't changed as much as some people
think.
And I think, as I say, as we get through these tariff negotiations and things
settle down,
I think potentially we could see an increase in activity in various places.
Very good.
You said you were bullish of copper.
How do you take advantage of that?
Well, I mean, we largely do it through equities and we look for those companies.
where they've got copper production clearly and people go well what are the
pure copper equities?
My view actually is there is a number of equities that which are classified as
diversified miners and the two you'd
look at there and they haven't necessarily done that well recently but if you look at
Anglo-American and tech resources
they have both sold restructured and are increasingly if you look in another year's
time.
will be very much more focused on copper and therefore and both have production
coming on and growth in that area so
it's not just going for the pure copper companies as people call them with just
copper production but also looking at companies where they have a
significant amount of copper production and possibly increasing okay
let's have a look at your positioning in your strategy are you sort of overweight
anything we are overweight
copper as you might have guessed and get copper equities.
We do think the risks are, there's always risks to the downside.
But interestingly,
copper trades 9,700 when it hit 9,000 on Liberation Day was a huge amount of buying
out of Asia
and price fixing, which tells you that's probably the flaw.
If things tighten up, and I think they could do, and demand remains a bit
stronger as these tariffs settle down.
There isn't a lot of stock in many parts of the world.
And if copper breaks out, it could certainly move sharply higher.
A bit like platinum has done in the last two months.
You'll suddenly get a break and people will see it as very tight.
So I think, you know, the risk reward there, I think the reward is definitely
looks more attractive to me.
Nothing certain, but that certainly could happen when, I don't know.
But I think it could happen in the next six to 12 months.
If we look elsewhere, as I say, we're probably cautious on oil.
but we're still pretty positive on gas volumes in the states we we see You know,
the requirement for gas power from AI, etc., is really we see gas volumes
growing,
you know, by about 20% over the next few years in the States at least.
And that we think is, you know, those companies, pipeline owners, exporters,
processors,
we see them as very attractive.
So they're more exposed to volumes rather than price.
And we like that.
So that's an area we continue to look at very closely.
As I say, and then on the fertilizer side, we remain positive on potash phosphates as
well.
And of course, I have to mention gold, where, you know, gold prices have
obviously had a very strong run.
And we certainly see them holding above $3,000.
Could they go higher?
They certainly could.
We've written recently about the fact we could be entering a dollar down cycle.
That could certainly be very positive for gold.
and clearly the fiscal situation in the US.
also makes us positive, as well as the central bank buying, which continues to be
very strong.
So gold prices, we think, at the minimum are well supported.
And if you believe that, then we still believe the equities offer very good
value.
The simple fact is the equities are up over 50% this year.
As we said, does that mean you've missed it?
The point I make to people is margins have more than doubled this year with those
rising prices.
And therefore, I still think there's plenty of room.
for gold equities to continue to progress as long as gold prices at least remain
where they are.
George, thanks so much for your extended time.
George Cheeverly is a portfolio manager at 91 in London.
The views and opinions expressed in these podcasts are those of Lindsay Williams and
various contributors and do not reflect the policy,
position or opinion of any other agency, organisation,
employer or company associated with StrictlyBusinessPodcast.com.