CATs Corner – Episode 13

Nick Snyder:
All right. Welcome, everybody, got another episode of [Cat's 00:00:05] Corner coming at you. Today is Monday the 24th. We'll get this posted this week.

Pete Thomas:
That correct.

Nick Snyder:
I just want to give people to reference what day we're talking.

Pete Thomas:
[crosstalk 00:00:17].

Nick Snyder:
Tell us, fellas, what's going on today? How are the markets looking today?

Pete Thomas:
They're looking just like we thought they would last week, which was, as the war progresses in the Ukraine, we're seeing people running in and buying gold. They're seeking the safe harbor against paper currency, which always happens when you're in a war footing. The manufacturing metals usually get cracked initially, and we're seeing copper down. It broke through the 450 level, which, as you know... I know you follow it closely, Nick, and took it out today with no problem at all. And what [crosstalk 00:01:02].

Nick Snyder:
[inaudible 00:01:02] 12 right now.

Pete Thomas:
Yeah. They hit it really hard and then all the other transducers of electricity... Aluminum is the second one for wiring... Got hit hard today. And then, by the way, if you're going to war, you you have to move things in cans and things of that nature. You have to feed your troops. So, tin took off, which we thought it would, and it's up a full 1%. That's a big move in tin. And so all, everything, the war drum is beating and the markets are reacting, Nick.

Nick Snyder:
What's it doing to [inaudible 00:01:41] and palladium [inaudible 00:01:43]?

Pete Thomas:
Well, remember, palladium has greater use in high speed missiles, surface to surface stuff, and it's up a whopping $35, so that's up. It came out of the gate strong. It's up almost two percent earlier on. And then platinum, which has more jewelry usage, and automobiles, well, guys aren't buying cars if they're dead in the mud, so we generally will see pressure on platinum, and early on, it was down as much as 25. It's not about 15 now. So, I mean, everything, if you've lived through war markets, as I have, everything is in tune. There're no surprises today.

Nick Snyder:
What do we think? It continues to trend this way? Do they take more juice out of this?

Pete Thomas:
No. As a matter of fact, I think Scott has something to contribute as far as the juice in the metals market, which I think is important, because anytime you're looking at the metals, you have to look to the West. So, Scott, could you give us a little quick rundown on what we were talking about this morning?

Scott Pollan:
Yeah. So, before hopping on the video, Pete and I were talking about domestic demand inside of Asia, and the order books are strong and they're still buying material, and the domestic material value, the cost of base resources in China, has not really dropped as fast or as hard as one might expect when you look at their building sector falling into disarray. So, one must ask, "What's going on with these prices? Is there government? Have they kicked up the subsidy and not really told anybody, which could be happening? Are they just buying material and stockpiling it, which could be happening, or have they have begun the process of devaluing that you want, and that is reflected in the material prices?"

Scott Pollan:
And then we go into international foreign currency exchange, and as the material prices, which are benchmark to the US dollar, as that numerical value continues to go up, is that increase in scarcity, or is that a devalued US dollar in the international commodities pool? So, and as Pete was talking about, wartime economy, something that happens to pay for wartime is currency devaluation. So, how does that factor into this major scenario? We may very well see base resources increase in numerical value.

Nick Snyder:
Yeah. I think you hit it right on the head. Obviously, this will be a big wait and see type thing, what really, really comes down like if a full on war, which no one ever hopes for, comes out the gate, what does it do? But if it does happen, we still have to navigate how to live our lives around it.

Scott Pollan:
That's right. And where are the energy markets? We all use energy every single day. So, looking into our crude oil pricing, it doesn't look like it's going down anytime soon.

Pete Thomas:
Well, generally speaking, there's usually, after it settles in, moving troops on vessels, they're the number one consumer of low grade crude products, number two products like that. You'll see the bottom end of the refining cycle pick up and the upper end drop, because there's less people driving. Right now the disaster over the last year of high inflation, high food prices, people aren't shopping as much or driving as much, because in many places, gasoline is double, but you will see the war basis for the inexpensive stuff that moves troops, that moves a war machinery, will have a strong base. So, it'll be a real mixed bag. It'll be real difficult to follow as far as trading and energies go.

Nick Snyder:
You said palladium is used in missiles?

Pete Thomas:
Yes, absolutely right. Yeah. The cruise missile guidance system have a lot of rhodium and palladium in it.

Scott Pollan:
And silver, right?

Pete Thomas:
Yeah.

Scott Pollan:
Every Patriot has X number of ounces of silver in circuitry and guidance.

Pete Thomas:
Actually, one of my accounts was one of the guys that built that missile system, and he used to trade silver with me. So, I'm a little familiar with it.

Scott Pollan:
One of my friends worked on the [Paveway Project 00:06:19], and there's a lot of metals in those, and when things get heated, that's a lot of metal that just goes poof. That's not getting recycled. That's not coming back.

Pete Thomas:
It's not getting recycled, no. I'm sure that's turned into vapor.

Nick Snyder:
That's in the universe now.

Pete Thomas:
Yeah, exactly right. Yeah.

Scott Pollan:
And that does have an effect on prices.

Nick Snyder:
Yes. Well, anything else to add, fellas?

Pete Thomas:
Well, yeah. I think, as we talked about, support for our scrappers, your scrappers, everybody that's involved in metal, look at it. Nickel fell off of its 10 year high, really got cracked. We kind of expected that. Like we just discussed, copper took out 450 like it wasn't even there, but two wartime metals that generally see support, Nick, is aluminum and then everything that you are using has to be plated against rust and outdoors, so you'll see a good demand in zinc will all of a sudden pop up. So, those are things to keep an eye on, guys. If you're recycling and you have that product on hand, look for some good prices to either hedge or sell into. [Nor Nickel 00:07:37], which is the largest platinum palladium producer in Russia, who just had that big flood in their minds not long ago, said they're now back to 100% production today, officially.

Pete Thomas:
So, they're recovering, and the question becomes, "Are they going to be able to sell it into the world market if they invade?" So, we don't know, but if they can't, that's about 31% of production. So, look for some strong underlying numbers in platinum palladium. Also, I watch something called The Commitment of Traders. A lot of your guys don't watch that, but last week, we were short 2,800 contracts in Palladium and 3,400 in platinum. This morning, they were only short 1,300. So, we almost had a 66% drop in short metals on the platinum side. And on the palladium side, we picked up 14,000 new positions on the long side. So, we're seeing, not commercial, but speculative money coming into the metals in a very big way, whether they're offsetting their shorts, which means that they aren't taking a commitment, or their new longs, that, we can't tell from that number, but we're seeing some bullish numbers coming into the market, Nick.

Nick Snyder:
Very interesting. Well, awesome. Well, thank you, gentlemen. Let's try to do this next week too if you guys are available.

Pete Thomas:
If we're around, we always like to contribute and help your guys kind of figure out what their pricing should be.

Nick Snyder:
Sounds great. Have a good rest of your week, everybody, and stay tuned.

Pete Thomas:
You bet.

Scott Pollan:
Thanks.