This week, Nick and Brett talk to guest Peter Thomas and get his perspective of the market's movements. Peter is a senior vice president at Zaner Precious Metals, a division of Zaner Financial Group. He currently manages a global cash desk which handles refiners, recyclers, mining operations, and coin and bullion companies. His insightful opinions drawn from his 35 years of metals trading are frequently in demand by Bloomberg News, The Guardian, Hard Assets, Kitco, Futures magazine and other news outlets. Follow him on Twitter at @metalzaner. Listen and follow along on Rev.com Here or play the youtube video and follow along with the text below.

Nick Snyder:

Okay, thanks for joining us, guys. We're sitting here on Zoom with Pete Thomas. How you doing, Pete?

Pete Thomas:

I'm doing good. I'm in the corona lockdown mode here at home, just pretty much like everybody else. Downtown Chicago is a ghost town.

Nick Snyder:

So, you're over in Chicago?

Pete Thomas:

We're in the Financial District. We've been in the center of downtown Chicago for 40 years.

Nick Snyder:

Okay. Do you want to give us a quick background on you and your company?

Pete Thomas:

Sure. I'm a second-generation floor trader. I started on the floor, filling paper in the silver pit, and went through the Bunker Hunt era, filled paper for him. And then moved upstairs and started a clearing operation of my own and subsequently moved over to INTL FCStone, which was the 49th biggest dealer in the world. And went from Stone over to... was fortunate enough to be able to join Zaner and we've just been going great guns ever since. I miss being in the Treasury building, but it's all right, I've been enjoying it for some time now. Zaner's a family-owned business, we run an international metals desk that covers gold, silver, copper, platinum, palladium, and occasionally when we've lost our mind we'll trade a little rhodium, but ...

Brett Ekart:

Market's pretty wild, for sure.

Pete Thomas:

You think? You call in, "What's the bid offer?" "Oh, we're 600 wide." You're like, "What?"

Brett Ekart:

I saw today, I was looking at it, it's down $2000 and [inaudible 00:01:57]-

Pete Thomas:

$3000. Yeah. Yeah, it was $3000 spread, I was like, "what am I doing with this, why did I buy this?" It's just ... oh my God. But it's been fun, it's been real interesting. We invented a platform decade and a half ago for a hedging and all the guys in our business, because the contracts are so big, a lot of our guys don't have an exact 25,000 pound allotment per load, so they needed an offset. So, we took copper down to the pound so a guy can hedge exactly whatever he's loaded in the truck-

Nick Snyder:

Mm-hmm (affirmative).

Pete Thomas:

And we sit down with our ... because copper's difficult to hedge and you really have to have a lot of background and a lot of technical work has to be done so that you can enter into the market at a profitable point. So, we have a group that does that and it's worked out really, really well for us, but-

Brett Ekart:

Well, Pete, not to cut you off, but... so I'm a third-generation scrap guy-

Pete Thomas:

Outstanding.

Brett Ekart:

And I think there's a lot of people that will watch this, but don't hedge, right?

Pete Thomas:

Oh, yeah.

Brett Ekart:

The only thing I've ever hedged is platinum group metals because-

Pete Thomas:

Sure.

Brett Ekart:

We buy catalytic converters and we buy a decent enough amount that if we don't hedge we can get caught-

Pete Thomas:

Oh.

Brett Ekart:

out in a bad way.

Pete Thomas:

Yeah.

Brett Ekart:

And so that's the only experience I have as a scrap recycler.

Pete Thomas:

Sure. Sure.

Brett Ekart:

You and I have kind of communicated back and forth so I would love, I mean, just for you to expand, as much as for my knowledge as for anybody that watches this and just explain to the average scrap guy that doesn't hedge today-

Pete Thomas:

Sure.

Brett Ekart:

How he can hedge or she can hedge and-

Pete Thomas:

Right.

Brett Ekart:

The advantages, the disadvantages of it and kind of what that market looks like and I think that would give everybody a ton of value.

Pete Thomas:

Absolutely. And you know what? The thing is, we look at the entire market, too, and so for example, Ecuador came out today and said, "Oh, by the way, we're shutting down all our mines," just totally unannounced, everybody like, "Really?" Then Peru announced yesterday before that they were shutting down. Now, Peru's the second largest producer of copper in the world and everybody went, "Okay, so ..." Then we scrambled over and looked at the residual copper in the warehouses in China, all right, and we said, "Well, wait a minute. They're down about 4%." So, we're seeing the mines slow down production, but we're also seeing the stockpiling go down because the ports are closed, Chinese ports are still closed. There's ships bobbing up and down on anchor now three weeks with millions of dollars of product sitting out there, it hasn't come in.

Pete Thomas:

So, you're getting this bizarre ebb and flow and you guys especially, you're on the ground, you guys don't see that big global picture-

Brett Ekart:

For sure.

Pete Thomas:

And that's what's been tossing you guys around on these strange waves. One minute we have these big announce... for example, about 4:00 this morning they came out and said, "Oh, by the way, Europe is awash in base metals, we have more zinc than we've had since... I wrote it down: "We're up 4.3% in stockpiles across Europe. We have more zinc than we've had since the beginning of August, nickel, tin," so all these industrial plating metals that are going to be used in conjunction with copper-

Brett Ekart:

Mm-hmm (affirmative).

Pete Thomas:

There's just... we just have tons of it around. So, what happens? Well, we feel that pressure, right? And when we see that pressure and we know guys like yourself are going to have to be delivering, you're expecting loads coming in, where do you want to be? You want to be sure. You want to sell that market into that pressure with the idea that I own 60, 80, 100 tons of copper right now. I sell it on my Tornado account, which means I've sold it, I'm short as it's referred to.

Brett Ekart:

Mm-hmm (affirmative).

Pete Thomas:

As that market comes down from the pressure of the inventories and the lack of usage, which is critical right now, here's something for you guys that I want you to think about. Right now, car sales in China are down 79.1%, close to 80% of their car sales are just no more and they don't... there's no projection for when they're going to start again. Now, if you look at the real numbers, and you guys know this better than I do, 18 to 49 pounds is the top end of... is the amount of copper in your average vehicle, all right?

Brett Ekart:

Mm-hmm (affirmative).

Pete Thomas:

So, you look at that and you go, wait a minute, they're not selling any cars, so we know that demand is going to be extremely low, so that pressure is going to continue to come into that copper market. At 2.50 and 2.60 I was screaming at people, on the air, on our podcast, all our heads, just going, "Guys, start selling what inventory you got." And what your four word obligations are. A lot of guys will come in and have orders from construction companies, from electrical... twisted wire, strand wire users, all of that going out, even going out to December sometimes. Right now it's a different situation, but...

Brett Ekart:

Yeah.

Pete Thomas:

So, they'll go out and they'll say, well, jeez, if it's going to be lower, I don't think we're going to do anything but stay short and just let these prices go down so that what we own as it's losing its value we'll be making on our short side, our account will be making the money in that. If you're hedging properly, you don't make a profit, you shouldn't make a penny. Anybody that tells you that they're going to make you money hedging, hang up the phone! I mean, just run. I mean-

Brett Ekart:

Well, it's essentially a way to preserve the value in your material that you've already committed to purchase-

Pete Thomas:

Right.

Brett Ekart:

You've committed to deliver, you're just preserving the value in a down market-

Pete Thomas:

While it's in your possession, while... exactly right, very well-put. Here's the other thing that'll make your business grow, there's two sides to this. You got a guy who comes in, let's say we're trading, I'm looking to see if we're going to test two bucks. If we test two bucks you and I are probably talking, we'll do an overview for you guys and kind of give you some idea where we think it could go if it takes that out. Let's say, for example, somebody comes in and says, "We've been doing business ... I know you guys are second generation, you've been around for a long time, you've got a manufacturer," a guy making washing machines comes in and says, "Hey, I'm going to need 100 tons of copper over the next quarter," all right?

Brett Ekart:

Mm-hmm (affirmative).

Pete Thomas:

And you're like, "Okay, what should I be doing?" Well, we look and we go, well, we're at a base here, there's a fair amount of product, but not a lot, maybe we should buy a going out, with the idea that then I can bid on that contract that I'm going to deliver to, my company is going to deliver to that contract, I'm going to give him as estimate of a price that I'm going to deliver at, now you could lock it in. There's no guessing anymore, you're buying it at two bucks, you're obligated to deliver it, let's say, two and a quarter, two-thirty, right?

Brett Ekart:

Mm-hmm (affirmative).

Pete Thomas:

You don't care. It doesn't matter!

Brett Ekart:

Well, you almost want the market to go down at that point as long as you have the ability to source the material.

Pete Thomas:

Well, I mean, absolutely, but the thing is that at that point, though, remember you're rock-solid now, you don't care what the ... you don't care ... the whole idea is, when you go to sleep at night, you want to go to sleep at night, you don't want to be thinking about where the market's going to be when you get up in the morning, right?

Brett Ekart:

Yeah.

Pete Thomas:

So, the idea is that what you want to do is what's technically referred to as beta neutral, you don't care whether it goes up, you don't care whether it goes down, you have fulfilled your obligation by buying it at a lower price and you buy it on a hedging margin, which is 4%.

Brett Ekart:

Yeah.

Pete Thomas:

So, what that does for you is, now you got that cash to work with in other fields. You want to buy some more cats? Buy away, you got more money on hand, right? You know what your yield... I mean, you could probably tell me in your sleep what your yield's going to be from the load of cats.

Brett Ekart:

Oh, yeah.

Pete Thomas:

And then you could hedge that, too, you could sell those PGMs, done. And it allows you to use the Tornado trading platform, the hedging platform, to mitigate all that risk throughout all the levels of your company, whether you're buying and/or selling. So...

Brett Ekart:

Well, let's walk through it, let's walk through it just for... just as granular, as basic for anybody out there, let's say I got a scrapyard and I buy-

Pete Thomas:

Sure.

Brett Ekart:

Two loads of copper a month and-

Pete Thomas:

Okay.

Brett Ekart:

Maybe a load of number one, a load of number two, plus I buy some insulated copper wire and-

Pete Thomas:

Okay.

Brett Ekart:

Whatever, just so I can just A) like I said, this is as much for my understanding as it is for the audience-

Pete Thomas:

You betcha.

Brett Ekart:

Watching.

Pete Thomas:

Now, where do you... what did you pay for it? Give me a hypothetical number.

Brett Ekart:

Let's say today I bought it for a dollar, a pound, right? I bought-

Pete Thomas:

Okay.

Brett Ekart:

Number one for a dollar and I bought ... now this is just arbitrary numbers-

Pete Thomas:

Yeah, oh yeah.

Brett Ekart:

I bought number one for a dollar and I bought number two for, say, 20 cents less, so I paid 80 cents a pound.

Pete Thomas:

80 cents on it, okay, fine. All right-

Brett Ekart:

So... and the market today is... where it's at, 2.20.

Pete Thomas:

2.20, right. So-

Brett Ekart:

So I-

Pete Thomas:

Go ahead, go ahead, I'm sorry.

Brett Ekart:

So... and let's say I anticipate I buy about the same amount every month, right, month on month, so from a just average guy standpoint, would I then call you or access the Tornado platform and say, "I'm going to buy 40,000 pounds of number one, I'm going to buy 40,000 pounds of two, my anticipated sale price is?" Or am I just hedging it off of the market that day, so if it fluctuates down I get coverage so that when I do actually sell it?

Pete Thomas:

In PGM, silver and gold, yeah, that's what to do, all right? In copper, copper and silver are sort of like the cats, they're the kind of skiddy market, I mean, they'll drop and run, just bolt at the drop of a hat. So, what we have to do is, before you jump on that load and sell it, all right, at that point, we have to take a look at the market and see where you are in relationship to the market, that's very, very important.

Pete Thomas:

If this market is tremendously weak and you're taking product in, right, you want to be selling, because that price is going to go down and you stand a good chance of losing some money. If we're seeing good potential, for example, the infrastructure bill, let's take a look at that, all right? We have to be aware of what's going on in the world today in order to protect you and to protect your company, all right? And if all of a sudden we see a nice, solid push for that bill to pass, let me tell you something, copper's going to go from 2.18 to 2.80 first up, there's going to be no in-between, it's just going to keep running and we don't want to sell your load if we're going to be walking into that.

Pete Thomas:

So, what we'll do is we'll sit down and we'll take a look at the overview of what's going on. Right now, today, we know that Chile's main mines, one and number two, are closed. We know that Peru is closed. We know that Ecuador is closed, right? We know that no product is going into China because the ports are still closed. I would not want you to sell here. I would not want you to sell here, because everyone's seen all the bad news that's in the market, we've broken 40, 50 cents, right?

Brett Ekart:

Mm-hmm (affirmative).

Pete Thomas:

Let's see if it holds a little bit or if it's going to get weaker, you and I will come to that decision at this time, right? If we're looking at 2.15, 2.16 and the volume's good and the market's been holding well, I don't want to expose you to get short right in there. There's a good chance that with everything as horrible as it is, that this market has only broken 50 cents, let's say. I don't know if I want to see if it's going to go much lower. Why not just leave it the way it is, do it the way you always do it, all right?

Pete Thomas:

On the flip side, if you're going to be buying loads because you have obligations in the future and we're down around these lows and we start to see the coronavirus numbers come down and we start to see Wuhan, we start to see New York, Italy we have to watch, Spain we have to watch, we start to see those morbidity numbers starting to come down and when we start to see that cycle getting a little better, hey, you're going to see a rally here, you're going to see a good rally here. Maybe we should be buying out into the future a little bit to mitigate the possibility of you paying more for that in the future. Does that make sense?

Brett Ekart:

Yeah, yeah-

Pete Thomas:

Okay.

Brett Ekart:

That makes sense.

Pete Thomas:

Okay, good. Good.

Brett Ekart:

So let me... so that would be basically the scrapyard, the guy that's selling the material, whether it's the owner or the purchasing manager, whatever, he's dealing directly with you-

Pete Thomas:

Absolutely.

Nick Snyder:

"Okay, enter this in, 'I'm going to be sitting on 80,000 pounds of copper and-' "

Pete Thomas:

Yep.

Brett Ekart:

We're going to ... [inaudible 00:17:39] we need to move it, or we ...

Pete Thomas:

And here's the problem. Because we've been doing this so long, people always panic when we say, you know, "Don't trade." They go, "Wait a minute, how can you... we're not making money?" Doesn't matter. It doesn't matter because you know what? You're going to be with us for 20 years. We want to make sure that you've opened the doors every day and you can turn the lights on. And if we're telling you to put a position on, going into some type of political event, we're not doing you a service, we're not giving you that value-added, that's what we're here for, that's what we do. So, taking all of that into account, I hope I'm not making this sound too complicated, it-

Brett Ekart:

No, no, I mean... I mean, that was one of the reasons why we wanted to do this is, like I said, I'm always on a quest for any of our businesses is to acquire knowledge, I mean, that-

Pete Thomas:

Sure.

Brett Ekart:

That's-

Pete Thomas:

Yeah.

Brett Ekart:

And the reason I like the video side of it is, I'm getting knowledge and we can pass it on to everybody else.

Pete Thomas:

Absolutely, absolutely.

Brett Ekart:

And if that helps you promote your business, so be it, I mean-

Pete Thomas:

Oh, yeah.

Brett Ekart:

The more the merrier, but the reality of it is, whether they use you or somebody else, or whatever, just the understanding the ability of how to be a better operator or how to take some of the risk out of your business or whatever that is, that's super important, and whether you're in the scrap business-

Pete Thomas:

Oh, yeah.

Brett Ekart:

Or any business for that matter.

Pete Thomas:

Well, and here's another thing and both of you should consider, too, is this: if you add stability to the global business, to what's going on in American copper, if we have more guys hedging and mitigating risk, it adds stability across the board to the market, you have a better market. If you have guys not going belly up and you have a firm, strong market, the business is going to do nothing but get bigger, because it's firmer, it's stronger, the equity, the money is rolling through it quicker. I mean, these are all very important things that are going to influence you. So, what you're doing now by creating a video to show people globally what's occurring in copper, locally what's going on, tools that they can use for hedging to mitigate risk, all of these things will eventually come back to you in a myriad of ways.

Nick Snyder:

And I think-

Brett Ekart:

What's your take on it, I mean, from... I think, and this is just my experience, but what's your take on it from people that say, "The way I hedge is by buying as the market comes down-"

Pete Thomas:

Uh-huh.

Brett Ekart:

they still buy and so you're averaging your price down-

Pete Thomas:

Right.

Brett Ekart:

Just organically, versus actually using a hedging tool and going that route, just say, my hedge is I have the ability to keep the lights on and buy $1 copper just like I can buy $2 copper so then when I do get that bounce I'm in the material-

Pete Thomas:

Yep.

Brett Ekart:

At the correct price and ...

Pete Thomas:

Hey, look at economics 101, right, dollar-cost averaging, DCA, everybody learns it, you know why? Because it works! I mean-

Brett Ekart:

Yeah.

Pete Thomas:

That's just how it is. The question is here with dollar-cost averaging is, at what level do you start buying? If we're in a boiling hot market, when we went through, recently, when we went through 2.20 and started a header for 2.40, if you got in the way of that you got hurt, I mean, that market was running, the last thing you wanted to do is start selling a product that you wanted to start accumulating because I knew we were going 2.40, 2.50-

Brett Ekart:

It felt like we were going at three bucks, I mean, we were on the cusp of going...

Pete Thomas:

It had the smell of three bucks, didn't it?

Brett Ekart:

Yeah.

Pete Thomas:

It really did, yeah.

Brett Ekart:

It was on the trajectory, right?

Pete Thomas:

Yep. Oh yeah, I like that. But you know what? Once it hit that 2.80, remember it was tickling 2.80, 2.85, back and forth, the volume started coming down, and I was like, "Wait a minute, less people are willing to buy up here." And I reassessed and I looked at it, I said, you know, what we refer to as open interest, the amount of people that are involved in the contracts that are he"W?ging at that time, we see that open interest coming down, that market's going down, not a matter of "if" or a "maybe", less people are putting money in the market. So, we kind of pulled back and we put out what we call an SOS to all of our guys and said, "Be careful here, the market feels heavy, don't over-commit right now. If you want to do a 20 or 30% hedge right in here, if it goes to three bucks, okay, you're out 15 cents, but if it goes at 2.50, you're out 30 cents, so it's a two to one risk/reward ratio and as it turned out we happened to be right that time, yeah.

Brett Ekart:

Do you feel like that, on the scrap end, it's... I mean, we pride ourselves on the recycling and the green side of the business, but the reality of it is that a lot of us are, especially guys like Nick and I that... what we do is we're basically commodities traders-

Pete Thomas:

Oh, for sure.

Brett Ekart:

With the production side of it as a separate side, but I mean, we spend our days buying and selling and buying and selling and that's-

Pete Thomas:

All day.

Brett Ekart:

That's what consumes a lot of my day on the scrap side of our business.

Pete Thomas:

Of course it does.

Brett Ekart:

So, it's more of a trading and as that gets more sophisticated, the trading side of it, I mean, it feels like that's the trajectory, that's where it's going is a more sophisticated versus just dollar-cost averaging, buy some more scrap, let's get the price down, and trying to work our way back into it.

Pete Thomas:

And you know what? You know where most of it's done? Right here on your phone-

Nick Snyder:

Yeah.

Pete Thomas:

On Tornado.

Brett Ekart:

Yeah.

Pete Thomas:

We have guys, I mean, they're backing their truck up and loading it and they're sitting there on their phone doing their hedge. And that's it, and they're done, the load's been sold and the hedge has been made, or they bought it before, they bought it cheaper and they're selling the load and they're getting the cash put into their account, of which we'll bank wire the same day, so ...

Nick Snyder:

I think what's going to be cool with bringing you in, Pete, to kind of talk about the market, talk about copper, talk about the PGMs, is our customers. We talk about the market every Monday, we say, "Hey, it's down"-

Pete Thomas:

Great.

Nick Snyder:

Seems like every Monday we're like, "It's down," with everything going on.

Brett Ekart:

Some day that's going to change, some day it's going to go up!

Nick Snyder:

Yeah, some day we'll have a Monday, we're like, "It's up 20 cents from last Monday," but it's been a while.

Pete Thomas:

Yeah, well ... well-

Nick Snyder:

We'll be able to ... you give us that worldwide insight that helps me personally and then we can share that with our catalytic converter customers or-

Pete Thomas:

Oh, that's great. That's great.

Nick Snyder:

if they have questions, you know?

Pete Thomas:

Let me tell you guys something. When Putin and Nicolas got in that beef, let me ... the greatest trader in the world in metals is Putin, anybody that tells you different is an idiot, all right? This guy is like the fox in the henhouse, man. I mean, when those Siberian mines are cranking, and you and I both know what that means, right?

Brett Ekart:

Mm-hmm (affirmative).

Pete Thomas:

When they're going, and all of a sudden he goes, "You know, I think the State-run bank should have some of that palladium," and you go, "Oh no," because you know we're going higher, baby, because he's just ... he's taking it right off the market. And in the meantime, he's long the market in Switzerland and nobody knows he's got persistence on, he's just raking it in and everybody's like...

Brett Ekart:

And I feel that's the same thing that he's doing in oil right now is-

Pete Thomas:

Oh, yeah. Oh, you nailed it, dude, absolutely, he walked-

Brett Ekart:

That's what's happening.

Pete Thomas:

Yep.

Brett Ekart:

Yep.

Pete Thomas:

Oh, very, very astute call, it's exactly right. And, oh by the way, guys, that's what you're trading also. And anybody that doesn't understand that if you're in the copper business you're in the diesel business, there's no in-between. You're moving product and you better keep an eye on that needle that says E or F because there's money going out either way there, so that's very astute of you and that's exactly what happened. And they kissed and made up the other day and we went from $19 to $25 a barrel in two days and everybody was like, "What happened?"

Brett Ekart:

The biggest single day increase in history.

Pete Thomas:

Yeah, and we're up two, two and a half percent this morning.

Brett Ekart:

Yeah.

Pete Thomas:

So, very good call, and I think that goes to what you're saying, which is that international flavor really does percolate down to you guys, it influences what you do. And it goes as far as this, we have probably one of the greatest Presidents we've ever had in our lifetime. When he said, "Okay, we're going to shut everything down, except we're going to give exclusions to scrappers," and everybody went, "Who the hell are they?" And he goes, "Oh, by the way, I make buildings, I know that steel and copper and aluminum are the backbone of this nation, we need to have that moving." I was so glad when I saw that exemption come through, I said, "Thank God, my people can still earn a living."

Brett Ekart:

A hundred percent, yeah, there's-

Pete Thomas:

Yeah.

Brett Ekart:

I mean, you can pooh-pooh all the essential-this, essential-that that you want to, but there's a few industries that really are, say, the backbone of the infrastructure side and-

Pete Thomas:

Yep.

Brett Ekart:

There's a lot of industries out there that just don't get the recognition-

Pete Thomas:

Nope.

Brett Ekart:

And I'm not saying even about the scrap business, we are what we are, obviously most people in it love it for what it is, but-

Pete Thomas:

Oh, yeah.

Brett Ekart:

There's a lot of people out there-

Pete Thomas:

And most people are like you, man, most guys are second, third generation.

Brett Ekart:

Yeah.

Pete Thomas:

Yeah, oh yeah, they love it, absolutely. But let's just say don't pooh-pooh it, either. I mean-

Brett Ekart:

Yeah.

Pete Thomas:

What you guys do is vital to the health of this nation and you were recognized by the White House for the first time!

Brett Ekart:

Yeah.

Pete Thomas:

So...

Brett Ekart:

It's a big deal for the industry-

Pete Thomas:

Yeah!

Brett Ekart:

Sure. So let's pivot a little bit-

Pete Thomas:

Sure.

Brett Ekart:

Pete, and give us your outlook, what your 30-day, 60, 90...

Pete Thomas:

Okay.

Brett Ekart:

What do you see on the material, the metals that you're the most familiar with?

Pete Thomas:

Well, right now let's go over ... we do an awful lot of gold, but I don't think it's what I want to discuss here, I want to drill down to what you guys are using day in and day out.

Brett Ekart:

Okay.

Pete Thomas:

Let's stay with the PGMs, I do a lot of stuff for Bloomberg on PGMs and let's talk about something that hasn't been touched upon enough right now, which is the green initiative of the Communist Chinese Party. The green initiative, for some reason, China said, you know what, one point ... think about this number. 1.2 million people died last year in China from respiratory illness caused by pollution. What? I mean, that's a staggering number, all right? So, they said, we think we'd rather not see what we're breathing, maybe the air shouldn't be this brown color, so what we're going to do is we're going to make it a law that all the trucks, all the cars actually have to have these things called catalytic converters on them. I mean, these guys are literally sawing the catalytic converters off, pouring number two diesel in and mixing it 50/50 on their motorcycles and their delivery trucks and this plume of this purple smoke is just running out the back of the trucks and you're going, "Oh my God, wait a minute!" And that's what they're used to.

Pete Thomas:

And finally the Communist Party said, "We can't afford to lose a million, two million people a year, because we don't have auto cats." So, that is what caused our shortage, all right? All of a sudden, the biggest consuming nation outside of America said, "We're going to start putting catalytic converters on our vehicles." And we ended up looking around going, there isn't enough stuff around.

Brett Ekart:

Yeah.

Pete Thomas:

What are we going to do?

Nick Snyder:

Was that in 2019 when that went down? When did that happen?

Pete Thomas:

About a year and a half ago.

Nick Snyder:

Okay and that's why you saw that huge spike on the price of catalytic scrap metal.

Pete Thomas:

And didn't stop.

Nick Snyder:

Yeah.

Pete Thomas:

Did you notice how we got the spike and normally when you get a spike you get that drop when the market gets tight, it just never stopped, it just kept right on going. And any product, and you guys saw this more than I did, I'm sure, any time you had any product on the end somebody was calling me, "What have you got? What have you got on hand?"

Brett Ekart:

Yeah.

Pete Thomas:

And I know personally ... I have some NDAs in place, I can't talk about some of our customers, but ... and an auto-manufacturer that I'm familiar with was like, we have ... we'd call them buttons, 50-ounce palladiums, "How many buttons you got? Send me 10, send me 20." We were like, "You're a two-lot buyer, three-lot buyer, what are you talking about?" "Well, I need 1000 ounces." You're like, "What?" And the-

Brett Ekart:

Because they were ahead of the curve?

Pete Thomas:

Exactly, there you go. Yeah, yeah, exactly right, they knew, they knew the demand was going to increase and by golly it did. So, taking that into account, and as this coronavirus starts to subside and we start to see car sales go from 90% down... and also by the way, the Chinese stock market's down 80%, so all the people that had lost millions and millions of dollars, they are not buying cars either.

Brett Ekart:

Yeah.

Nick Snyder:

Yeah.

Pete Thomas:

So, those two things bumped into each other, a major event. So, the consumption in China just disappeared. So, I've been watching that diligently, when I start to see that come off, then we'll ... I'll give you a heads up. The other thing that was very interesting, Bloomberg called me yesterday and I said, "The new EPA ruling's passed," I don't know if you guys saw that, but-

Brett Ekart:

Yeah.

Pete Thomas:

Trump has decided that the Obama ruling was a little bit high and he's going to ease up on the amount of NO2 and CO2 emissions. So, they sent me the document, it was 1,272 pages, okay, so I didn't exactly get through it last night, so ... I looked at it, I said, "You know what I'm going to do is, here's what's going to happen," go with me on this, guys, see what you think. I'm saying to myself, "If we get an infrastructure bill together, and I have faith in this guy running the country right now, I think we're going to get it through," what's going to be the first thing to be in demand, it's going to be light trucks. Guys are going to be working and they're going to be wanting to buy newer vehicles because they're going to be hauling, they're going to be on the road more, they're going to be moving more product. And so I said, "All right, I'm going to read and see what the bill and how it's going to impact light trucks because that's going to be the biggest thing."

Pete Thomas:

And as I looked at it, I said, "Okay, it looks like we're 1.5 to 2% more emissions," which is really nothing, I mean, you watch the news, it was like the end of the world was coming and it would be 10% more pollution and blah-blah-blah, it's just not true. According to the numbers that I read, I'm looking at 1.5, all right, and how much is that going to affect our end, how many PGMs, how much less is going to be used?

Brett Ekart:

Mm-hmm (affirmative).

Pete Thomas:

And I'm thinking 2%, it's just not going to be significant because, what, in the last three years we've been averaging about a 3 to 5% deficit every year. If we didn't have you guys on the job, recycling, we'd be in a real bad way, there just isn't enough product around.

Brett Ekart:

Especially if they keep closing down mines because, I mean, I think, just like any business, and a mine is no different, you don't just turn the lights off and then turn them back on and-

Pete Thomas:

Exactly right.

Brett Ekart:

And your production isn't the same as soon as you start as it was the day you stopped, it takes a while to fire those things back up and get them-

Pete Thomas:

Get the guys used to working again, I mean, just getting rhythm set up, getting in and out of the locker room. I mean, just little things that eat up the clock, you're absolutely right, very, very-

Brett Ekart:

The best thing that can happen to them, whether it's a base metals or the precious metal side is mine closures, because I think that is going to drive... that'll drive pricing in and of itself when that deal does turn.

Pete Thomas:

Absolutely right. Now, here's the thing, though, and this is why we've been so choppy and this is what you were asking, we're seeing the copper all over the place and platinum, palladium, I mean, $500 swings, why is this happening? When I looked at ... let's say, let's use Australia for an example, it's a good analogy, they're gigantic iron ore producers, right, and they're ... All of a sudden the ports are closed in China, but they have no coronavirus, everything's going along smoothly there, so what do they do? They're still producing, they're running their mines, they don't slow down a bit. They're just piling and piling and piling ore and finally they look around and they go, "Where are we going to put this stuff? What are we going to do?"

Pete Thomas:

So, the question is, here, for this show, this is the big multi-billion dollar question, how big is that wave going to be, that yin and yang, where demand is way, way, way up, but stockpiles are real high, when are they going to meet? And you know what's going to happen? Exactly what happened right now and before, it's going to be choppy, it's going to be whippy, it's going to be very, very bizarre, you're going to have giant orders coming in to get filled, shortages happening, it's going to be fun, man, it's going to be the wild West again, I mean, strap on your six-gun, baby.

Brett Ekart:

Yeah, no, I agree, man, I think there's going to be a pretty good run when it starts, it's just a matter of what that timeline looks like and-

Pete Thomas:

Yeah.

Brett Ekart:

A lot of people, who can hold on the longest, as well, I think that-

Pete Thomas:

Oh, absolutely-

Brett Ekart:

I remember that.

Pete Thomas:

Yeah, yeah. I mean, the guys that are hedging, which means that they have more cash on hand and they have a little more fuel in the tank, if you will, they're going to be okay. They were short on the way down so they didn't lose value on their products so their companies are healthy. A lot of guys that didn't hedge, that lost tremendous amounts in rhodium and platinum and palladium, are hurting. Now, we are seeing some recovery, right, we're seeing some stuff coming back here, but the question is, "How soon are any of us really going to see that real demand that we were seeing before?" Our President seems to think the end of this month that we should be getting back on our feet and getting people out to work. So, going with your point, which has great validity, it takes a while for the guys to get the furnaces going again, so let's say another quarter, and we'll probably start to see that demand come back again, in my opinion.

Brett Ekart:

So, real world example for you, let's say today a guy has to deliver a load of copper, he's committed to delivering a load of copper this month-

Pete Thomas:

Okay.

Brett Ekart:

50,000 pounds-

Pete Thomas:

Right, right.

Brett Ekart:

And he doesn't have it hedged.

Pete Thomas:

Okay.

Brett Ekart:

Right? He's just sitting on the material-

Pete Thomas:

Yep.

Brett Ekart:

He's got a load of copper in his warehouse, he's already committed to delivering it sometime in the month of April.

Pete Thomas:

Okay.

Brett Ekart:

Okay?

Pete Thomas:

All right, I would say right now I would recommend for him to do nothing but what he's doing, all right, which is, he owns it, it's there, just plan on making some money on the deal, but right now market's just ambling, right, and he could either be right or wrong and there's just... it's a guess at this point, and I don't guess with other people's money, ya know, it just... it just doesn't work. And so I would say at this point, between 2 and 2.50, this little area right in here, we're just bumpin' along in here and we have no direction, there's no indicator here-

Brett Ekart:

Yeah, so you're not really seeing any big upside, big downside-

Pete Thomas:

No, no.

Brett Ekart:

You're just kind of seeing that kind of calm ocean out there for now.

Pete Thomas:

Yep.

Brett Ekart:

It's either a big cataclysmic event happens one side or the other, right?

Pete Thomas:

Yeah. And the thing is that we are seeing, just so you guys know, my guys in Singapore, and also some of my European recyclers and e-waste producers and recyclers, all have been getting subtle inquiries for solubles. So, we're seeing some copper going out in a little bit bigger number, but nothing significant, but they're getting hits.

Brett Ekart:

I will say this, too, just for your own knowledge-

Pete Thomas:

Uh-huh?

Brett Ekart:

I've got a couple of people that have inquired, they know that we have material and they-

Pete Thomas:

Okay.

Brett Ekart:

They've offered above market pricing.

Pete Thomas:

Nice!

Brett Ekart:

Two different companies and so that tells me that either they've committed to material they don't have or that they're starting to feel that supply crunch that's-

Pete Thomas:

You know what, I'm going to go with the first one, I think you're right, I think you're right, I think that's a very good assumption. I think they're saying, "Hey, I was just looking at it 2800 and now it's at 1900, I'm just going to buy it, I'm going to use it at some point." And I'm the COO of a firm and I'm looking and going, "Right now I'm half-way back, I think I'd be foolish enough to step in here because I could do dollar cost averaging if it breaks-"

Brett Ekart:

Yeah.

Pete Thomas:

So, why shouldn't I buy it right here?

Brett Ekart:

I think ... this is one more thing, one last point, and you could definitely counter it if you think I'm wrong-

Pete Thomas:

Uh-huh.

Brett Ekart:

But if the Feds push a bunch of money at small businesses and that's-

Pete Thomas:

Okay.

Brett Ekart:

All different types of small businesses and obviously commodities traders are in that mix, if you get a big jag of money to come into the system and then stay the next 30 to 60 days-

Pete Thomas:

Uh-huh.

Brett Ekart:

People are inherently natural gamblers, right?

Pete Thomas:

Well, unfortunately-

Brett Ekart:

Well-

Pete Thomas:

Yeah. I mean, let's put it this way, in this industry they are, but by the time they get to me, usually they've just been beat to crap, they're just tired of gambling and they don't want to gamble anymore!

Brett Ekart:

I just don't wonder if there isn't going to be some kind of market-moving dollars coming in, this is why I say this is-

Pete Thomas:

Oh, I hear you, too.

Brett Ekart:

If you're going to get a loan at 3%-

Pete Thomas:

Yeah.

Brett Ekart:

I can see anybody saying, "Well, at 3%, I mean, that's not a big swing in platinum, palladium, rhodium, copper-"

Pete Thomas:

No, it's not.

Brett Ekart:

I'll take a big ... that's a one day movement and you-

Pete Thomas:

Nowadays, yeah.

Brett Ekart:

Nowadays, you're seeing those big movements.

Pete Thomas:

Oh, sure, absolutely.

Brett Ekart:

Is that going to increase or is that going to make that market more choppy than it is today?

Pete Thomas:

Well, I mean, the thing is that what I'm going to be doing, if I'm a COO and I know I got a good-sized loan coming in, and I'm crunching my numbers, I think what I'm going to be doing is I'm going to be looking out to December.

Brett Ekart:

Yeah.

Pete Thomas:

Know what I'm saying? I mean, I go, at year's end, I'm saying to myself, "This thing's going to be over, we're going to be..." and then do a logarithmic value going out to for appreciation against consumption, and I would definitely be taking some of that money coming your way, not even a question, and trying to get some commitment. And if nothing else, they'll be calling me, going, "Find me some futures in platinum, palladium, copper, whatever you... or in-"

Brett Ekart:

Yeah.

Pete Thomas:

Zinc, nickel, whatever they happen to want, because we know we're going to need it at some point and we want to lock it in at these levels while we're at this over-production level. And I think that makes good sense and I'm not going to argue with you 100% on that, I mean, I think you hit it on the head, but I think we need to look just a little further down the road.

Brett Ekart:

I think the longer it drags out, then the longer you have to look for the return, right?

Pete Thomas:

Yeah, because it goes to your point as to how soon are guys are going to be able to get up to speed? "Hey, the mine's open." So what? What's the production like?

Brett Ekart:

Yeah.

Pete Thomas:

Dr. Davis, who is the head metallurgist of the South African platinum/palladium mines, he and I chat occasionally, a very interesting guy, hell of a glider pilot, too, I used to be a pilot-

Brett Ekart:

Nice, nice.

Pete Thomas:

And he and I chatted and he says ... this was a month ago I did an interview with him, released some of the information out to our guys and he says, "We're closing these mines down," he said, "I don't care what anybody tells me." He says, "This disease comes through," he goes, "We're done." And he goes, "I'm just... I'm getting ready to just shut all this down." And that mine's 120 years old, they haven't closed in a very long time and-

Brett Ekart:

Yeah. It's a force majeure event as some sort of earthmoving event-

Pete Thomas:

Event, well, that's exactly what it was, it is a force majeure event and you hit it right on the head and it's a recognized force majeure event, so-

Brett Ekart:

Yeah.

Pete Thomas:

The insurance companies aren't real happy about that because, I mean, everybody's going "act of God," but now it's down to the attorneys and-

Brett Ekart:

Yeah.

Pete Thomas:

That's a whole other game.

Brett Ekart:

So, I'm super curious, just have you ever seen in your lifetime Chicago, city of Chicago, as quiet-

Pete Thomas:

No.

Brett Ekart:

As it is today? Is it just almost like kind of-

Pete Thomas:

I'm going to give you-

Brett Ekart:

Awe-inspiring?

Pete Thomas:

I'm going to give you an analogy that's going to blow you guys away, all right? This is just so bizarre, right? Walking around on the street, there's dead pigeons laying in the street and you're going, "What the hell's going on, dead pigeons all around?" The pigeons eat the garbage that people throw away, the MacDonald's they throw in the garbage cans, the pigeons go and pull it out.

Brett Ekart:

Yeah.

Pete Thomas:

They go... they eat, that's what they are, they're garbage-eaters, man-

Brett Ekart:

Uh-huh.

Pete Thomas:

And there's no garbage to eat, so the pigeons are dying all over the city.

Brett Ekart:

Oh.

Pete Thomas:

I mean-

Brett Ekart:

Yeah.

Pete Thomas:

I mean, you're just sort of going, it's eerie. I got on a train, there were seven people on a train, I was like, "Whoa, man..."

Brett Ekart:

Yeah, that's wild. I could, I mean, I just know even our little world over here in Idaho and Oregon and how quiet it is and I can just imagine those big cities that... they don't ever sleep, right-

Pete Thomas:

No, never.

Brett Ekart:

For the most part, and especially in the financial districts and [crosstalk 00:47:52]-

Pete Thomas:

Oh, yeah.

Brett Ekart:

And then just to have it be quiet.

Pete Thomas:

It took eight million people off the street.

Brett Ekart:

Yeah.

Pete Thomas:

Eight million! I mean, that's a whole lot of action, man, it's gone. I mean, you don't even see a car. I mean, basically, the only reason you see somebody out is to get some groceries.

Brett Ekart:

Yeah.

Pete Thomas:

That's it. And we, fortunately, were set up in case of this event, I mean, we even had our backup servers hid in a cave-

Brett Ekart:

Yeah.

Pete Thomas:

Because you just never know what's going to happen, man, I mean, and we have an obligation to guys like you, your hedges better damn well work! And so-

Brett Ekart:

Yeah, yeah.

Pete Thomas:

So, we're ...

Brett Ekart:

I just want to say thanks, man, I appreciate the time, I can't wait... I'm thankful for Nick for setting this up.

Nick Snyder:

Yeah.

Pete Thomas:

Me too. And Nick's been a lot of fun, too, I like giving him a hard time, we have a lot of laughs.

Brett Ekart:

Yeah, that's it, as good as they come, right there.

Pete Thomas:

Yeah, right.

Brett Ekart:

I just... I can't wait to sit down with you when, as I mentioned, we can get a commitment out of you and just walk through the markets-

Pete Thomas:

Sure.

Brett Ekart:

You know, whatever it is, once a week, once a month, whatever that day is-

Nick Snyder:

Yeah, at least once a month, man-

Brett Ekart:

And just kind of-

Nick Snyder:

Would be good.

Pete Thomas:

Yeah.

Brett Ekart:

Let our customers, let people know-

Pete Thomas:

Yeah, I mean-

Brett Ekart:

A different viewpoint.

Pete Thomas:

When we get up in the morning, "Why is the price this?" Well, here's why, this is what happened, this political event caused that price to occur, that's what I do, and I'll be happy to give you guys a hand with that-

Brett Ekart:

Yeah.

Pete Thomas:

No worries at all and hopefully it'd help. Also, the head of the coronavirus taskforce in China, Dr. Ahn, A-H-N, I did a video with him-

Brett Ekart:

Yeah, I saw that!

Pete Thomas:

Oh, you did! Okay, great, yeah. And so-

Brett Ekart:

I follow your stuff-

Pete Thomas:

Oh, thanks, dude!

Brett Ekart:

I follow your stuff, yeah, I... yeah.

Pete Thomas:

Okay, because if you could tag it to this somehow, just... if we could prevent one guy from getting sick I'd be real happy.

Brett Ekart:

Okay, yeah-

Nick Snyder:

Yeah.

Brett Ekart:

We can do that, for sure.

Pete Thomas:

Yeah. And that's a freebie, man, just tack it on there.

Brett Ekart:

Yeah. Yeah, we will do everything on our end that we can to-

Pete Thomas:

Okay, great.

Brett Ekart:

It's good for industry, it's good for the country-

Pete Thomas:

It's good for everybody, it's good for the country, man, that's what it's about.

Nick Snyder:

Yep, absolutely.

Pete Thomas:

Yeah.

Brett Ekart:

Well, thanks again, much appreciated, and I look forward to continuing the dialogue.

Nick Snyder:

Yeah.

Pete Thomas:

Oh yeah, absolutely. Hey to everybody who's this is the first we've had a chance to catch up and I'm going to try to interject as much as I can to give a little more transparency to this, really, craziness that's been going on and we're doing our best to give you some legitimate numbers-

Brett Ekart:

Yeah.

Pete Thomas:

Not this made-up CNN stuff.

Brett Ekart:

I agree, I agree.

Pete Thomas:

Yeah, yeah.

Nick Snyder:

All right.

Brett Ekart:

Thank you, Peter, much appreciated, Peter.

Nick Snyder:

We'll bring you back on soon, okay?

Brett Ekart:

All right.

Pete Thomas:

Thanks a lot, bye-bye.

Brett Ekart:

Take care.