[TOP STORY] Looking at Russia’s PGM basket in the current conflict

Bruce Williamson from Integral Asset Management considers the global impact of a possible ban on PGM exports by Russia, particularly for SA.

SIMON BROWN: I’m chatting now with Bruce Williamson from [Integral Asset Management]. Bruce, I appreciate the time this morning.

Looking at Russia’s PGM basket, typically folks are saying it’s around 40%, but you say, hang on a second, there is a lot of recycling coming in. That reduces the Russian impact in the PGM space fairly markedly – even in palladium, where they are one of the big players.

BRUCE WILLIAMSON: Yes. It’s just I think a slightly different way of looking at supply and demand. Instead of offsetting recycling, which is very substantial – in terms of palladium it’s about 30%/32% – against demand I prefer to treat that as a supply-side issue. If you do that, then Russia is on a normal year more like 28%/29%. But still, it is the biggest miner of palladium no doubt. We get close to them at times.

And if there had to be full-on sanctions it would have a major, major impact.

SIMON BROWN: You mentioned sanctions. Certainly there is no news of bans out there on Russian commodities, be it whichever. They are huge across the commodity spectrum. There is that risk of buyers just being cautious, and I’m seeing reports out there that one of the state-owned Siberian oil and gas companies has now for the third time, the third day in a row, had no buyers of their crude. You are allowed to buy, but perhaps the buyers are a little cautious, and that could create some friction in the space, even without a ban.

BRUCE WILLIAMSON: Simon, yes. Undoubtedly there are going to be issues, exactly the same as with supply-chain issues with Covid. As you’ve just said, if some of the banks, some of the guys who do the airfreighting of high-value precious metals, decide that they don’t really want to do this business – and it might just be for a few weeks – that’s enough to cause even more tightness in the market, and banks have got to process the payments.

SIMON BROWN: That’s it. It’s around the payments, it’s around counterparty risk more than anything else. We have seen that the six-PGE [platinum-group elements] basket, which has been recovering since the lows of last year, certainly has been ticking higher in the last couple of weeks:we’ve got rhodium back almost at $20 000/oz, we’ve got palladium at $2 500/oz and platinum staying quite strongly above $1 000/oz.

BRUCE WILLIAMSON: Collectively the basket is right back there in a very, very high space, so again the miners will start pulling in strong revenues and, just to note, the important one from a revenue perspective is rhodium. It’s now probably just over 50% of the basket, whereas palladium is about 23%/24% of the revenue basket, and platinum is down at 17%/18%. Rhodium is the big winner.

SIMON BROWN: Yes, rhodium is a big winner and South Africa is a big producer of rhodium.

BRUCE WILLIAMSON: Absolutely. We are at just over 50% if you include 35%/36% coming from recycling. Russia is only about 5%/6%.

SIMON BROWN: Yeah. I like that point.

BRUCE WILLIAMSON: Remember, at the margin if 6% suddenly didn’t come out, then that impacts the market.

SIMON BROWN: Absolutely. It’s in a tight space already, and I take your point. If you remove that it’s not just a small issue, it’s a big chunk that suddenly has disappeared.

We’ll leave it there. Bruce Williamson from Integral Asset Management, I appreciate the time this morning.

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