CATs Corner – Episode 12

Nick Snyder:
Welcome, everybody. Another exciting episode of Cat's Corner, with my esteemed panel. Guys, I know you both but please introduce yourself again, if someone's never watched.

Pete Thomas:
I'm Pete Thomas. I'm the senior VP at Zaner Precious Metals, at the metals desk itself where we do recycling. We assist recyclers, we assist in the direction of bullion sales. We do hedging across the board, we have a [inaudible 00:00:34] and probably the best platform in the industry for hedgers and we've been involved with copper, platinum, palladium.

Nick Snyder:
[inaudible 00:00:39].

Pete Thomas:
And, so we stay pretty darn busy.

Nick Snyder:
Cool, man, I like it. And this other guy in the corner?

Scott Pollan:
Hey, Nick, so for your next guest, my name is Scott Pollan. I work here at Zaner Metals with Pete and I'm the young guy on the metals desk. And my job is to bring some vitality into here. Woo.

Nick Snyder:
I love it, there we go.

Pete Thomas:
And right behind him, look at the picture behind him. Right behind him is the Chicago Mercantile Exchange, that's where we are. That's our main office downtown. We're right across the street from the Merck.

Nick Snyder:
You got the coolest view, man. There's no filter, no filter in your view.

Scott Pollan:
I'm in the mix, I'm in it every day.

Nick Snyder:
I love it. Well, let's dive in. We released an episode last week, I was asking you two, where does this platinum go? I know it goes in catalytic converters because that's what converter reclaim buys. But I know that's not its only use, so let's just kick off there and then we'll get into where we think what the markets are going to continue to do.

Pete Thomas:
The thing is with our business and our people and the people that hedge with us, basically it's automotive. Guys are pulling copper wire, catalytic converters. You guys do a tremendous job with your cats over there. And so we normally think that all the platinum palladium, the honeycomb are going out and going to cars and that's the only place. But I reached out and got the World Platinum Investment Council, a good friend of mine, Raymond, that runs the situation, Trevor Raymond. What an English name, Trevor, he was supposed to see me when I was on my speaking tour in the EU and in London. And I was talking on metals there, and I got some numbers from him and as far as industrial demand. We see our cars but where's everything else going?

Pete Thomas:
And here's something really interesting, guys, and I had completely forgotten. I know, we have, for years, I used to help with Kodak but the production of glass at Corning and places like that, they used special strains of glass that has platinum in it that's ultra clear and ultra fast. And their consumption now is up to 29% of the world market of platinum, that's a gigantic number. And to the best of my knowledge, I don't think there's a way to recover for that. But that's one of the processes.

Pete Thomas:
Also, don't forget jewelers. We have a big demand of jewelry, possibly as high as 28% annually. So that's a big number, and then couple that, those of you who follow us at Zaner Precious Metals, also our newsletter, it comes out once a week. [inaudible 00:03:34] writes it, it's fantastic. I'm on GoldBug and on Twitter, and also on LinkedIn, I write articles on them. Medical demand used to be very, very small. Now we're up to 14% of all produced refined platinum is going into medical usage. So, we're number two but there's a lot of pressure going on in the market now, as production drops. The South African mines, over the years, they've been in the same mines [inaudible 00:04:07]-

Nick Snyder:
Uh-oh.

Scott Pollan:
Pete, we lost you a little bit there.

Pete Thomas:
... now for 104 years-

Nick Snyder:
Hold on, we lost you a second. You said we were in the same mines for 104 years, is that what you said?

Pete Thomas:
Yep. 104 years.

Nick Snyder:
And are those mines drying up then?

Pete Thomas:
Well, what happens is this, Nick. You'll have a vein that you're working on in an area, and all of a sudden the yields will drop. Well those yields in the veins that they're in now for the last two or three years have gone down, and so what you have to do is you have to start grooming new veins with higher yield. And they've fallen behind on the curve, the price of their product has gone up but they haven't invested the money in the mining itself. So we're seeing lower numbers come out of South Africa, and that was pretty much the primary guys for a long time, so now we're relying more and more on Russia for their production.

Nick Snyder:
So the medical use, is it going into equipment? Is it going into the actual medicine? Where is the platinum going?

Pete Thomas:
Well, Scott, do you want to take that?

Scott Pollan:
Yeah, so there are multiple uses of platinum in medicine. I come from a family of dentists, so there's actually a lot of platinum used in dental tools. It also is a component, I want to say in things related to like, every test strip for a diabetic, those test strips have a little bit of platinum in them and that's part of it. So when I look at medical stuff, I try to think about, "What is one and done and what is disposable? And what is not going to get back into the recycling stream?" And those blood test strips, a lot of those are gone. Common chemotherapy drugs-

Pete Thomas:
They have to because they're a biohazard, they have to be gone. They have to be disposed.

Scott Pollan:
Right, exactly.

Nick Snyder:
I know they're a biohazard, but if there was a program to recover the platinum out of it, do you feel like it's possible? Or no?

Pete Thomas:
Too dangerous. Way too dangerous.

Nick Snyder:
It's just done, so that's the-

Pete Thomas:
With COVID and whatnot, you're going to have dry blood coming in on a regular basis.

Nick Snyder:
Gotcha.

Pete Thomas:
I don't think so.

Nick Snyder:
That stuff's gone.

Scott Pollan:
The medical industry is where we like to see one and done. I like sanitary medical things. Another big use, especially as we have an aging population, is these two very common chemotherapy drugs, carboplatin and paclitaxel. That's really, they're injecting platinum into your body. And then the active component fighting against these cancerous tumor cells is platinum. And when you go, that platinum goes, so those are also these one time use case scenarios inside the medical industry.

Pete Thomas:
And that's a very unique product, Nick, in that it's referred to as an ultra powder. It's ground down til the grain is so fine it's almost unmeasurable it's so tiny. And a lot of it is irradiated and so you have to have special licenses to handle it and you're certainly not going to be recovering radioactive material.

Nick Snyder:
And you said that, did you say 20% goes into the glass?

Pete Thomas:
Actually, jewelers were 28% and glass was 21.

Nick Snyder:
So what kind of glass is it going into?

Pete Thomas:
Well, I'll tell you what. The glass is, it's being used in 5G and it's also, one of its biggest uses are wind turbines. They pulse electricity over this, what they call fingers of this ultra conductive glass. And it's becoming more and more practical because it has less line loss, so that's going to prove to be very interesting in the future also.

Nick Snyder:
It's not in the glass that's behind Scott, right?

Scott Pollan:
Yeah, no.

Pete Thomas:
Right, that has silver in it. There's a colloidal silver suspension that, they create a membrane that goes between the two windows, so when the sunlight hits it, it refracts off so that it gets rid of that heat that is created by the Sun. So that is a refractive membrane in there, and that uses silver.

Nick Snyder:
And then the platinum in glass, that's not going to be recoverable.

Pete Thomas:
No, absolutely. Not that I know of yet, let's put it that way.

Nick Snyder:
[crosstalk 00:08:36].

Pete Thomas:
Maybe if the numbers get high enough but you got to remember, it's heavy, it's difficult. High temperatures, what are the ratios going to be? I haven't seen anything to point that out but I'll take a look.

Nick Snyder:
And jewelry, that's something that could be recoverable. That's pretty straightforward.

Pete Thomas:
Absolutely. Well, actually jewelry never goes away, quite frankly. Just never. You can not go into a pawn shop or into a jewelry store with a piece of jewelry in your hand where you won't get a price.

Scott Pollan:
It's very common too, when you go looking for older period jewelry-

Pete Thomas:
They all recycle.

Scott Pollan:
The older period jewelry is almost primarily platinum because it's so much stronger. I'm encouraging all of my friends who are getting engaged, making these financial investments in their wearable wealth, and I'm pointing all of them to platinum. I'm saying, "Why would you buy gold jewelry right now? It's expensive. Go get some platinum, that'll increase in value, it's not going anywhere."

Nick Snyder:
Not that long ago, platinum was worth a lot more than gold. But it's flipped.

Pete Thomas:
That's exactly right.

Scott Pollan:
And an engagement ring, sometimes it's the biggest investment somebody makes at a young age.

Nick Snyder:
It was for me, absolutely.

Scott Pollan:
And I want to add something too, as you guys were talking about glass production, some of the machinery and the tools that are used to actually roll the glass out and to work with it, those are made of platinum and palladium and rhodium, the high heat resistance and corrosion resistance. So rather than using iron, which is going to make this oxide scale, if you're using platinum metals, they won't get contaminated and they won't corrode in that high heat environment of pouring out silica, silica glass.

Pete Thomas:
A lot of the beakers too, a lot of the labs and their beakers have real high tensile strength and very high heat resistance. And Corning does a lot of that work and they do it very well.

Scott Pollan:
Isn't that a big part of what Heraeus does, is they make laboratory equipment?

Pete Thomas:
Yeah, and Heraeus is probably one of the biggest end users there is out there, so that speaks a wealth of demand.

Nick Snyder:
Well, very interesting. And what's the percentage that is going into the catalytic converters?

Pete Thomas:
Actually, they're number two in net usage right now. So I don't have the percentage, but I know you put everything together and they are the second largest demand right now, is automotive.

Nick Snyder:
And as we know, that is recoverable. If it's done correctly, people are cutting the cats off the used cars, which cars is one of the most recycled things in the world.

Pete Thomas:
Absolutely.

Nick Snyder:
And people, you hear a lot about and we do everything we can to deter it and control it, we hear a lot about converter theft.

Pete Thomas:
Sure.

Nick Snyder:
I like to remind people, it's like, "You also have to remember, cars are the most recycled thing in the United States, is a vehicle."

Pete Thomas:
And same with Germany, in Germany they passed a law many years ago which said that any car produced have to have, a certain percentage of it has to be recyclable. So the government is working hand in hand with the recyclers there, attempting to bring in as much product and recover as much product as they can. So, it's an attitude. It's like, "We're going to work together and we want to make sure that you guys get as much of that product in," and as you know, from coated wire to platinum palladium, all of that comes back in. And it's important, and it's going to stay that way. Look, we're talking what? By 2035, they're talking about having the majority of gas powered vehicles off the road in California. Where are they going to go? Are they just going to stack them up on the side of the road? They're going to have to be recycled.

Nick Snyder:
Yeah, [crosstalk 00:12:35]. Where are all those non-gas vehicles going to get their copper from? Or their [crosstalk 00:12:40] from?

Pete Thomas:
They're not, they're just not. It's not available, they're not going to be able to do it. But we as end users, we as hedgers, we as producers, people, are all going to do our bit and help get that metal out to them so that we can bring about this [inaudible 00:12:57] revolution. And we're doing the best that we can. And I'll tell you what, our recyclers are just kicking it, man. Guys like you, we got to give you guys credit. You're making a living but, man, it's not easy work. It's not glamorous but we need what you're doing and really, we appreciate it.

Nick Snyder:
We were joking a lot when we're out of town for work, I was like, "We always have to sneak in the back because all the scrap metal groupies are out there waiting for us." That doesn't happen, it's not a glamorous business. We know a lot of rough people but I wouldn't have it any other way.

Pete Thomas:
Scrap metal groupies.

Nick Snyder:
I love this industry, I love what we do.

Pete Thomas:
For 40 years, they've been throwing rocks at us because we're the dirty guys on the outside of town, taking their garbage away. We're just the bad guys. Now, all of a sudden, we're rock stars. C'mon.

Nick Snyder:
So, let me see here.

Scott Pollan:
There we go, that's better. That's better.

Nick Snyder:
Real quick, how is the markets looking? We saw a run in rhodium. What's your guys' outlook? Are we still thinking what we thought a week ago? Any changes on that aspect of the pricing?

Scott Pollan:
Both of the metals, platinum and palladium-

Pete Thomas:
I'm still...

Scott Pollan:
I was going to say, they're catching a bid today, so both are up on their market. And they've found this comfortable range, where platinum and palladium like to hang out. And to me, sideways movement in a comfortable range is a positive indicator. Because that means there's support in that market, if there was excessive selling pressure, it would happen. So if we are essentially channel bound, in a particular price bound, that's good, that's good information. Especially right now, as our economy is not really moving at full steam. The whole world economy is not really moving at full steam, yet we're still finding support in the prices. That's really important because you build from the base up. So if we've got a strong base in a slow moving economy, that's great. That's great. For the long term, we're in a fantastic position.

Pete Thomas:
We're all right. Short term, we might have some bumps in the road but long term, we'll be all right.

Scott Pollan:
Each metal, platinum, palladium, rhodium, they've got a range where they're feeling relatively comfortable. Now rhodium, of course, has the highest volatility but it is finding its new home, let's say that.

Nick Snyder:
Got it.

Scott Pollan:
A new normal.

Nick Snyder:
Got it.

Pete Thomas:
I think from a technical standpoint, as Scott is saying, we're range bound and we're holding in an area. But for if you're a CEO of a firm and you're an end user of product, it makes life a lot easier. And if you know you're going to have a demand for 500 or 600 ounces of platinum and maybe 500 ounces of palladium in the production, you can look at your charts and you can come out to Tornado, our platform, and buy it right there for the future. And have the product sitting in your hedge and when you need it, then you just go out and buy it and lift your hedge. And then you're at beta zero and you have no risk as far as volatility to the upside goes. And that's been working pretty well for guys that work with us.

Nick Snyder:
Gotcha. Well, anything else to add, gentlemen?

Pete Thomas:
I think that'd do it for today. Scott, you have anything you want to add?

Scott Pollan:
I want everybody to stay safe and happy and healthy over the long weekend. And to really try to think about and brainstorm where our metals are coming from and where they're going and how we're using them. And I really like that you brought up, Nick, that an automobile is the most recycled product because it is. And none of that material gets wasted and automobiles are largely made from recycled material in the first place.

Pete Thomas:
That's true.

Scott Pollan:
That's a really great take home for all of your viewers, is to think about where are these materials coming from, where are they going, just because it's fun to think about sometimes.

Nick Snyder:
Absolutely.

Pete Thomas:
And all the guys that are hedging with us, Nick, that have been laying off risk on the Tornado platform, Tornado two is about to launch, so look for some headlines on that shortly. We're excited about that, so it's a completely new upgrade and it's going to offer a whole lot of things that we didn't have before. So, a lot of stuff that we had to do manually we can now do on the cart, so it's going to be very exciting.

Nick Snyder:
Exciting, I can't wait to see it. Well, thanks, gentlemen.

Pete Thomas:
I know you guys have a copy of it, we'll get you hooked up.

Nick Snyder:
Yes, yes, and I'll look for my hat too.

Pete Thomas:
Absolutely.

Nick Snyder:
Guys, have a great weekend.

Pete Thomas:
You too.