8.12.16

Electronic Scrap Recycling Market - Advance Technology Evolve in E-Waste Recycling Trends in Future


This report aims to provide a comprehensive strategic analysis of the global electronic scrap recycling market along with revenue and growth forecasts for the period from 2013 to 2022. The proliferation of computing and electronic devices such as smartphones, computers, tablets, televisions, small home appliances, digital cameras, music players, and laptops; shorter product lifecycles; and government legislations governing electronic waste (e-waste) are major factors influencing the electronic scrap recycling market. Hardly any electronic and electrical product does not contain metals or is not dependent on metals for its manufacturing. In e-waste recycling, damaged and unusable electronic and electrical products are processed and the metals they contain are extracted for use in new products.

Electronic and electrical products are progressively part of our life. In order to ensure that they have only a minimum impact on environment, end-of-life electronic products must be processed and the metals they contain must be recycled. The total volume of e-waste is increasing globally, but the number of smelters available to process it is very small.

In recent years, collected and scrapped electronic products have accounted for the largest increase in material type, primarily in the form of printed circuit boards (PCBs) from mobile phones and computers. Boliden Group (Boliden Rönnskär) has been melting out different types of recycling materials since 1960. The company owns technologies developed in-house, as well as an extensive capacity to process different type of materials.

This research study on the global electronic scrap recycling market provides a detailed analysis of how recycling and smelting companies in different regions are using electronic scrap for the extraction of different types of ferrous, non-ferrous, and precious metals from electronic scrap. The report offers an in-depth study of the market drivers, restraints, and growth opportunities. Using these factors, the report identifies various trends expected to impact the market during the forecast period from 2015 to 2022. The report includes a comprehensive coverage of the underlying economic, environmental, and technological factors influencing the electronic scrap recycling market.

It provides the competitive landscape of key players in the electronic recycling market in order to highlight the state of competition therein. The report also provides a detailed competitive analysis of the key players in electronic recycling and identifies various business strategies adopted by them. The study explains the penetration of each market segment within various geographies, and how these segments have accelerated the growth of electronic recycling market.

Interpret a Competitive outlook Analysis Report with PDF Brochure:

Based on the materials extracted, the electronic recycling market is segmented into ferrous, non-ferrous, and precious metals. Based on the type of electronic products, the market is segmented into IT, office equipment, and handheld devices; large electronic appliances; small household appliances; and other appliances.

The office, IT equipment, and handheld devices segment consists of computers, laptops, smartphones, tablets and other office related electronic equipment. The large electronic appliances comprises televisions, refrigerators, air conditioners, video, audio equipment and other equipment. Small household appliances include toasters, vacuum cleaners, and coffee machines and other appliances. The others segment includes lighting, electric fittings, and automotive equipment. The report aims to provide a comprehensive, cross-sectional analysis of the electronic scrap recycling market across major geographies such as North America, Europe, Asia Pacific, the Middle East and Africa, and Latin America.

The report includes an overview of the market strategies, annual revenues, and the recent developments of key companies operating in the market. The key market participants profiled in this study include Boliden Group, Umicore N.V., Dowa Holdings Co., Ltd., Ultromex Ltd., LS-Nikko Copper Inc., Glencore Xstrata Plc, Enviro-Hub Holdings Ltd., Outotec Oyj, Mitsui & Co., Ltd., Mitsubishi Materials USA Corporation, Aurubis AG, and JX Nippon Mining and Metal Corporation.

The report provides a comprehensive analysis of the raw materials feed, smelting, and refining processes pertaining to the recycling of electronic scrap offered by these leading players. Information on research and development activities, business processes, and upcoming technologies for the extraction of various metals from electronic waste is also included in the report.

Ucore Rare Metals, Able to Produce Critical Metals & REE in the US



Ucore Rare Metals [TSX-V: UCU] / [OTC: UURAF] continues to make confident strides in the commercialization of its Molecular Recognition Technology ("MRT") platform, contained in an enterprise to be co-owned between Ucore and IBC Advanced Technologies, Inc. Key to the enterprise is that it has exclusive rights to deploy the entire SuperLig®/MRT catalogue of metals separation products to monetize tailings applications anywhere in the world, in addition to mining and recycling applications in the REE and PGM sectors.

With over 60 SuperLig® products already developed for a wide range of metals, the opportunity is a large one, and Ucore is pursuing a technology licensing plan to get MRT in to the maximum number of applications. Diverse applications include inserting MRT directly into operating facilities (and/or bolting MRT onto the back-end waste handling function), recycling, remediation and, "urban mining," which entails separating high-value metals ("HVMs") such as Heavy REEs, PGMs, lithium, cobalt and tungsten.


There are a handful of mission critical REE, green energy & high-tech metals that could become difficult to reliably secure under certain adverse circumstances. Some examples from my review of various (mostly government agency) reports, the REEs dysprosium, yttrium, erbium, europium, terbium pop up a lot. Oil was of crucial importance in last century's wars, will electric battery components and REE be this century's show stoppers? It's no secret that in addition to an insatiable need for various REE, the U.S. Department of Defense ("DOD") is front and center in the analysis and adoption of EVs for military, national defense, homeland security & communications activities.

In addition to its broader vision to license MRT technology in to multiple metals sectors, Ucore has a near term agenda focused on accessing some of the highest demand HVMs in the U.S. On November 15th, the Company announced it has engaged in planning & development of a Strategic Metals Complex ("SMC"), capitalizing on the MRT platform developed for the recently completed SuperLig One pilot plant in Salt Lake City. The SMC will be a commercial production plant designed to separate feedstock containing critical rare earth elements /metals ("REE") (e.g., dysprosium, neodymium, terbium), and PGMs (rhodium, palladium & platinum).

This is proof that Ucore is ready to roll, detailed engineering work is well underway. Initial feedstock is expected to be sourced from, "recycling, swarf and tailings-generation partners in the automotive and REE permanent magnet industries." Ucore technology partner IBC has extensive experience in this area, for instance in PGM applications used successfully by operators such as Impala Platinum in South Africa. The potential economics for MRT plant placements are impressive. Based on my experience with similar licensing platform agreements, annual royalty fees of between 2% and 5% are fairly common. That, and an upfront licensing fee, plant design & maintenance fees, and recurring revenue from the sale of proprietary materials and services. In my opinion, mandates with large companies like Teck Resources (NYSE: TCK) could easily have Net Present Values in the tens of millions of dollars.

President/CEO & Director Jim McKenzie commented,

"Our pilot facility provides a blueprint for construction of a new generation of SuperLig® separation facilities to add to already-existing MRT installations around the globe. This Strategic Metals Complex represents not just a transition by Ucore towards near-term production and revenue, it represents a reaction to a very real domestic need for high-purity energy metals. In turn, the SMC represents a significant progression for Ucore, capitalizing on the innovative design of SuperLig®-One, and leveraging this platform in to full scale production."


My interest in Ucore is reinvigorated. Simply stated, MRT is faster, less energy intensive, generates fewer emissions and waste, does not use solvents or toxic chemicals, has a smaller surface and environmental footprint, requires less cap-ex and will enjoy lower op-ex. Now here's where things get more interesting. While an important theme underpinning Ucore remains the same, I believe it takes on new urgency with the election of Donald Trump. That theme being- Security of Supply of indispensable REE and critical green energy / high-tech metals. Few may realize that China not only controls, but completely dominates, the global supply of rare earth oxides, includes mining, processing & refining.

It's reported that over 95% of pure, separated REE produced last year were in China, REE in the hardware and software applications enabling National & Homeland Security and the capability of conducting both offensive and defensive military operations.

In addition to the paramount importance of knowing where one's electricity, food & water come from, and the risk of supply disruptions therein, knowing which REE and other HVMs our modern society cannot live without, is necessary and prudent. In World Wars I & II, people knew exactly which materials were essential to the war effort, tin, rubber, aluminum & steel, among others.... Does the West need to enter into a "hot" war to learn which metals are in fact critical?

Which critical metals will be most vulnerable to steady, secure supply to the U.S. DOD and DOE?

Am I being alarmist with the talk of WW III? Perhaps, but no matter what the future holds, I think that Ucore Rare Metals is well positioned to thrive in a world becoming more dangerous and more dependent on technology, with no end in sight. Investment funding for companies like Ucore are increasingly becoming available, for example this "Innovation Summit" organized by "America's largest angel investment fund, representing over $2.5 billion in early-stage, high-risk technology funding..."


Regardless of what readers think of Mr. Trump, he has explicitly stated things that favor larger military budgets. Without further commentary, here is what he has said, 1) Japan and Korea should strongly consider defending themselves 2) western Europe is not paying nearly enough for the military protection provided by the U.S. 3) given items 1, & 2, the belief that the military has been meaningfully underfunded and is in desperate need of a face lift. In addition to National Defense considerations, remember that Trump is gunning for China as well.

A larger U.S. military budget correlates well with larger military expenditures around the world. That's why a group of 6 well known military and homeland security stocks including Raytheon (NYSE: RTN), Lockheed Martin (NYSE: LMT), Harris Corp (NYSE: HRS) L-3 Communications (NYSE: LLL), Rockwell Collins (NYSE: COL) and General Dynamics (NYSE: GD) is up 15% since November 8th, vs. the S&P500, up 4%. Why should it be any different for Ucore, on the leading edge of new, green, high-tech platforms that will shape global geopolitics and our technology paradigm for decades?

Finally, readers might recall that President-elect Trump said he will designate China a "currency manipulator," and slap a 45% tariff on Chinese imports. Given that country's giant pile of U.S. Treasuries, and its control and utter dominance of all things REE, a trade war with China could be a dangerous undertaking.

As has been reported in detail by Ucore, REE and hard to replace or substitute HVMs are essential ingredients in a large and growing number of DOD & Department of Energy ("DOE") applications, not to mention in mining and industrial settings. Also contained in prior Ucore press releases is evidence that its MRT platform has been proven and independently verified, at pilot scale and ready for production scale in the near future.

What makes MRT superior to other proposed solutions? Relying heavily on last century's separation technologies like solvent extraction is an ill-advised and increasingly non-viable strategy, especially in China. It's impossible to ignore the horrendous air and water pollution, perhaps the worst on the planet, in Chinese cities. Not only is China de-emphasizing coal and going all-in on nuclear power, it already leads the world in wind and solar power and the electrification of its transportation sector. MRT is not only greener, it will deliver desperately needed security of supply to global end users, especially in the U.S.


Just-in-time processing and supply chains are the norm. Turning complex facilities and integrated systems off, and on, is time consuming, costly and introduces unnecessary operating risks. It's alarming that U.S. agencies, both inside and out of the DOD, not to mention powerful industry trade associations, have failed to address this critically important issue. The ongoing failure to obtain some semblance of security of supply is a clear and present danger.

Conclusion

The implications for REE mining and production outside of China, are profound. Ucore Rare Metals [TSX-V: UCU] / [OTC: UURAF] is in a prime position to 1) benefit from higher REE & HVM prices 2) be part of the solution of the rallying cry for security of supply, and 3) address increasing demand for products and technologies that accelerate the game-changing shift away from fossil fuels.

All roads lead to greater use of select metals like the ones mentioned, but also greater use of metals that galvanize steel and can be used in next generation alloys. However, perhaps most important to recognize, is that some of the REE/HVMs most in demand and most difficult to secure in the future, might not be on anyone's radar screen today. That's why the flexibility afforded by over 60 SuperLig® products embedded into Ucore's flagship enterprise with IBC on MRT is an increasingly important and valuable asset.

End note: Hiding in plain sight, China's monopoly on critical REE is a well-researched and reported topic.

ThreeConsulting.com Article April, 2016

BreakingDefense.com Article March, 2016

Russia Direct Article February, 2016

U.S. Government Accountability Office Report February, 2016

Disclosures: The content of this article is for informational purposes only. Readers fully understand and agree that nothing contained herein, written by Peter Epstein, about Ucore Rare Metals, including but not limited to, commentary, opinions, views, assumptions, reported facts, calculations, etc. is to be considered, in any way whatsoever, implicit or explicit investment advice. Further, nothing contained herein is a recommendation or solicitation to buy, hold or sell any security. Peter Epstein and Epstein Research [ER] have never been, and are not currently, a registered or licensed financial advisor or broker/dealer, investment advisor, stockbroker, trader, money manager, compliance or legal officer, and they do not perform market making activities. Peter Epstein and [ER] are not directly employed by any company, group, organization, party or person. Shares of Ucore Rare Metals are highly speculative, not suitable for all investors. Readers understand and agree that investments in small cap stocks can result in a 100% loss of invested funds.

At the time this article was posted, Peter Epstein owned shares in Ucore Rare Metals and the Company was a sponsor of Epstein Research. Readers understand and agree that they must conduct their own due diligence above and beyond reading this article. While the author believes he's diligent in screening out companies that, for any reasons, are unattractive investment opportunities, he cannot guarantee that his efforts will (or have been) successful. Mr. Epstein & [ER] are not responsible for any perceived, or actual, errors including, but not limited to, commentary, opinions, views, assumptions, reported facts & financial calculations, or for the completeness of this article.

7.12.16

Retrace, a Xinova Spinout, Provides Data to Improve E-Waste Recycling

For all of its noble goals, the business of recycling old electronics and mobile phones is fraught with challenges and not very profitable. Retrace, a Seattle startup that spun out of Xinova earlier this fall, believes providing better data to recyclers and other players in the global market for used mobile phones will help.

"It's not necessarily as clean and green as everyone seems to think it is," says Michael Rubel, founder and president of Retrace. "Even the good players struggle with the compliance measures and it's a tough game, even for the big guys."

Xinova, formerly known as the Invention Development Fund, rebranded itself this fall as it completed its spin off from Bellevue, WA-based Intellectual Ventures, the patent aggregator and multifaceted invention shop of former Microsoft CTO Nathan Myhrvold. A mashup of the words for new in Chinese and Latin, Xinova is pursuing a new model for uniting research and development with commercialization in industries including IT, agriculture, and manufacturing. It connects its customers - ranging from startups to Fortune 500 companies - to a network of 10,000 experts in more than 30 countries to define and solve problems, and make better products and services.

The company, based in Bellevue with offices in Japan, Korea, China, India, Singapore, Australia, Germany, and Israel, spun out other startups including Coffee Flour, which is commercializing a byproduct of coffee production, and QSense, which makes technology to monitor and share air quality information. (We'll hear more about Xinova from executive vice president and head of global partnerships Paul Levins at Xconomy Intersect on Thursday. Learn more and register here.)

At Retrace, Rubel took a circuitous path to the business of providing phone makers, recyclers, brokers, and mobile carriers with data on flows of second-hand phones from one market to the next.

After a career as a Naval officer and nearly eight years working on innovation programs at Michelin, Rubel found himself at an Austin, TX, based e-waste recycler. He helped the company restructure, raise funding, and obtain certification from Sustainable Electronics Recycling International. He thought things were being done the right way, he says. They weren't.

"They were basically taking bad electronic waste, putting it in the back of a shipping container, filling the front end of it with teddy bears and cute little things that no one would ever notice and shipping it off to China and just not telling me about what they were doing," he says.

Several U.S. e-waste handlers were caught shipping e-waste to junkyards in places like Hong Kong and elsewhere in Asia that have weaker protections from the environmental and health impacts of scrapping old computer monitors, printers, and the like. The Seattle-based Basel Action Network (BAN) sniffed out the practice, which ran counter to assurances consumers were given about e-waste recycling, through the e-Trash Transparency Project, revealed last May.

After discovering the practice at the Austin company, Rubel resigned. But he still felt drawn to the e-waste recycling business. He founded Second Wave Recycling, which recycles a couple thousand donated phones each month, giving the proceeds to charities. While there, he was invited to review Intellectual Ventures' portfolio of intellectual property related to recycling. He ended up becoming an entrepreneur in residence at IV and began working on what would become Retrace.

The company's original idea was an e-waste marketplace to "to bring more transparency and efficiency to an otherwise struggling market," Rubel says. "Everyone needs to audit everyone else and so this whole audit trail - even though a good thing on one hand - really kept anyone from doing any business efficiently using technology. It was still very old-school. [You] have to fill out paperwork. It's got the little carbon copy underneath it."

Retrace decided to focus specifically on cell phones.

"Arguably cell phones are growing a lot quicker than any other e-waste category," Rubel says. "There's more value there. There's more trade internationally because they're lighter weight."

BAN says a million cell phones can yield as much as 20,000 pounds of copper, 550 pounds of silver, 50 pounds of gold, and 20 pounds of palladium. Smartphones in particular are often resold to consumers in emerging markets.

The biggest value Retrace saw in its marketplace was the data.

"I was watching the transactions go around the world and we saw pricing, we saw trade, we saw volume, and we saw models," Rubel says, adding, "This is a commodity, just like any other product."

The company now provides that data and analysis to customers throughout the phone recycling and resale supply chain.

"We're working on the ability to predict the future as far as what will happen when they launch the iPhone 8, where the best price is, and where the phones are going," he says.

Rubel credits Xinova for incubating Retrace as it sorted out its technology and business model - even though the business Retrace landed on doesn't use any of the initial intellectual property - and also with honing his skills as an entrepreneur. Before pitching investors, he practiced with the Xinova team members, many of whom have venture or corporate investing experience, and received "oftentimes brutal and honest" feedback.

That paid off when he went to pitch his business. Last month, the company announced that WaterStone Capital, an early stage venture firm with offices in Seattle, Beijing, and Shanghai, acquired a controlling stake in Retrace and paired it up with Miao Miao Cloud, a Chinese tech company that was also building a marketplace for mobile phone resales. The combination creates a global marketplace for second-hand phones and expands Retrace's market for its analytics tools.

Rubel says that a more efficient marketplace could help increase phone recycling rates.

"More consumers will want to recycle their phones because they'll realize there's more money in it when the carriers pull it from them," he says.

3.12.16

Egypt's latest vision for e-waste management


 Egypt's latest vision for e-waste management

Maybe it's broken and cannot be fixed. Maybe it costs more to maintain than to replace. Or maybe it's just old and you have bought a newer model. Either way, what do you do with electrical and electronic goods once you decide to get rid of them?

Here comes Dr. WEEE, a company specialised in electronic waste recycling. Its business model is designed to meet all market needs related to e-waste management. The company provides a comprehensive e-waste management service. They collect, sort, dismantle, and recycle as much of the components as possible while ensuring that the process from start to finish is as environmentally friendly as possible. The company also sells electronics-related products, such as ink cartridges, produced from recycled components.

According to Esam Hashim, co-founder of Dr. WEEE, every stage in the process has a business opportunity. He explained that Egypt forms the largest e-waste market in Africa and the Middle East, yet despite this he said most companies working in the field do not understand how to properly dispose of e-waste. "Companies that work with e-waste in Egypt use an old-fashioned way of extracting precious components, and their way of getting rid of dangerous components harms the environment," he said.

According to Hashim, many of these companies do not know that many of the components that can be extracted from e-waste are valuable - such as gold, silver, copper, platinum, titanium, copper, and iron - and instead due to a lack of knowledge and technology extract only copper and iron.

Dr. WEEE divides these components into three categories: base metals such as iron, copper, and steel; precious metals such as gold, palladium, and platinum; and hazardous components such as lead, cadmium, and batteries.

Rather than attempt to extract and separate these components, many e-waste management companies dispose of their waste by burning it, Hashim said, adding that older e-waste contains more precious metals than modern appliances and devices.

At first, the company tried to persuade Egyptians that they should bring their e-waste to them in order to be able to dispose of it in a way that mitigated the health and environmental risk factors; however, Hashim noted that the overall response was unenthusiastic.

When Dr. WEEE initially had trouble collecting e-waste, the company had settled to purchase such waste from individuals and companies alike. This eventually became a successful strategy for the company. Hashim said that most of the e-waste they receive comes from individuals and the private sector rather than government institutions.

For an older-generation mobile phone the company pays EGP15-20. Newer phones fetch EGP 30, and laptops can be traded in for EGP 25. Old monitors or televisions can be sold to the company for EGP 20-30.

Egypt is currently the largest market in both the Middle East and Africa. Producing approximately 370,000 tonnes in 2014, Hashim believes the country's share of e-waste will continue to grow.

The United Nations University study said South Africa is second on the continent, producing 350,000 tonnes in 2014, followed by Nigeria which produced 220,000 tonnes that same year.

Following their success in Egypt, the company has since established a franchise with a different model for every stage of the operation. Dr. WEEE now also operates in Lebanon, Jordan, Saudi Arabi, and the United Arab Emirates.

Hashim said that the company prepared many turnkey solutions in order to achieve the highest quality and to maximise profits.

The annual global volume of the e-waste generation is expected to reach 93.5m tonnes in 2016, according to a new report from Research and Markets. This estimate is more than double the 41.5m tonnes generated in 2011.

Hashim also said that global revenue generated from the sale and processing of end-of-life electronics is projected to double from its current $9.15bn per year to over $20bn over the next five years.

According to UNEP estimates, only 15-20% of e-waste is recycled, the rest goes directly into landfills and incinerators.

"Electronics recycling is now the fastest growing segment of the recycling industry," Hashim noted.

In terms of the company's vision for the future, Hashim said he wants to move forward in a way that maximises production efficiency, while also taking into account the environment and sustainability.

He believes that their technology is part of this belief that ensures that the company's products, employees and suppliers follow socially responsible business practices aimed at environmental preservation and sustainability.

"Through our experience in the field of waste management and business franchising, sharing our experience and technology with our clients is a win-win situation, especially in the most rapidly growing segment of the recycling industry," Hashim added.

While the company has expanded into other markets, Hashim noted that the company does not yet provide full services in their franchises outside of Egypt.

He noted that Egypt doesn't have the technology required to recycle all extracted components, and so the company's main target is to export their extracts to foreign countries.

Going green to make some green

Dr. WEEE still faces many obstacles, such as the establishment of collection points across the world and access to the latest technologies. Personnel training and awareness campaigns are therefore very important in order to continue being effective and profitable.

In order to raise awareness, the company promotes e-waste recycling in schools and private sector companies by holding environmental awareness campaigns. Hashim said he welcomed the government's receptive attitude towards the company's vision, saying they have signed an agreement with the Ministry of Environment and the Ministry of Communications and Information Technology to create a standard and set criteria for the best way to extract precious metals and export them.

Ultimately, Hashim says he wants to change consumer patterns from the current intensive consumption based model to more environmentally sustainable consumption habits. He believes his company can provide the model and motivation to help the informal waste management sector become more environmentally conscious, reducing the health risks while also increasing their profits.

By educating others on proper methods of e-waste disposal and recycling, companies can turn a bigger profit and contribute to improving the environment.

30.11.16

Gold price edges higher, investor focus turns to FOMC minutes

Gold was in positive territory on the morning of Tuesday November 22 in rangebound trading in London while investors await the minutes of the previous US Federal Open Market Committee (FOMC) tomorrow.

The spot gold price was recently quoted at $1,218.45/1,218.85 per oz, up $3 on Monday's close. Trade has ranged from $1,213.75 to $1,221.05 so far.

"Gold kept its head above water, with technical-based buying supporting the market. However, with the market increasing bets on a December rate hike in the US, this buying is unlikely to persist in the short term," ANZ said.

Investors will scrutinise the minutes from the previous FOMC meeting for hints on when and how quickly the Fed will raise interest rates. Market participants currently see a 95.4% chance of a rate increase in December, according to the CME FedWatch tool.

"With investors' dual focus on the buoyant equities markets and this Wednesday's FOMC minutes, gold and the rest of the precious metals have fallen out of favour. Consolidation... is likely to be the main driver leading into the FOMC minutes," Commerzbank said.

In currencies, the dollar index has eased since peaking at 101.49 last Friday, its highest since April 2003. It was recently at 100.70, down 0.12% on the previous close.

In the other precious metals, the spot silver price was up 20 cents at $16.860/16.880 per oz. Platinum climbed $12 to $944/954 per oz and palladium at $737/743 per oz was $15 higher.

The World Platinum Investment Council (WPIC) forecasts global platinum demand in 2016 to fall 3% year-on-year to 8,040,000 oz. It sees total platinum supply at a marginally lower 7,870,000 oz year-on-year, it said in its quarterly report today.

Total platinum supply in 2017 is seen dropping by 2% to 7,745,000 oz while mining supply will be flat year-on-year in 6,000,000 oz. Platinum recycling will decline to 1,745,000 oz, down 6% year-on-year, the WPIC predicted.

It forecasts total platinum demand in 2017 to fall 2% year-on-year to 7,845,000 oz, with projected growth in jewellery demand unable to offset expected declines in automotive, industrial and investment demand, the WPIC added.

Platinum market deficit set to shrink in 2017

Platinum market deficit set to shrink in 2017 - WPIC

* Platinum market expected to see 100koz shortfall next year * Diesel share of European car market tipped to fall * Bar, coin investment seen weakening in 2017 By Jan Harvey LONDON, Nov 22 The platinum market deficit will shrink to its narrowest since 2011 next year, the World Platinum Investment Council said on Tuesday, as a drop in investment and diesel's waning share of the European car market pressure demand. The WPIC also cut its expected platinum market shortfall for this year to 170,000 ounces from the 520,000 ounces predicted in September, citing a larger than expected drop in Chinese platinum jewellery demand, and higher recycling. That deficit will likely shrink to 100,000 ounces in 2017, it said, cutting above-ground stocks of the metal to 2.045 million ounces by the end of next year, the WPIC said. "It's all good and well to say that metal is available from above-ground stocks, but as soon as the vaulted holdings aren't for sale, any deficit makes for concern, especially from industrial users," the WPIC's director of research Trevor Raymond said. Autocatalyst demand is expected to decline 1 percent next year, the WPIC said, as diesel's overall share of the autocatalyst market shrinks. Demand for platinum for use in catalytic converters was flat this year, it said, in the face of concerns that last year's Volkswagen emissions scandal would dent demand for diesel cars, which use a higher loading of platinum in their autocatalysts. "At the moment, the 2016 percentage of diesels on European roads is 50 percent. Our forecast for next year includes a 48.5 percent diesel share, so that's a fairly aggressive fall," Raymond said. There has also been a move to other forms of emissions control technology, he said. Investment in platinum, which is expected to have risen 15 percent this year on the back of strong coin and bar demand, particularly in Japan, is forecast to fall by more than a quarter next year, the WPIC said. It expects bar and coin investment to lighten, and demand for platinum-backed exchange-traded funds, which tailed off recently after a strong start to the year, to be little changed. Overall platinum demand is tipped to fall 3 percent this year to 8.04 million ounces, the WPIC said. Jewellery demand is expected to slip by 10 percent, or 300,000 ounces, as buying in number one consumer China drops for a second year. On the supply side of the market, refined production by mining companies is predicted to have fallen 3 percent this year. The WPIC revised up its forecast for recycled platinum supply this year to 1.86 million ounces from 1.745 million in September, due chiefly to rising jewellery recycling in China. PLATINUM SUPPLY/DEMAND ('000 OZ)* 2015 2016 2017 (f) (f) Refined production 6,150 5,970 6,070 Change in producer inventory 45 40 -70 Total mine output 6,195 6,010 6,000 Recycling 1,710 1,860 1,745 TOTAL SUPPLY 7,905 7,870 7,745 Automotive demand 3,395 3,390 3,360 Jewellery 2,880 2,580 2,625 Industrial 1,685 1,720 1,610 Investment 305 350 250 TOTAL DEMAND 8,265 8,040 7,845 Balance -360 -170 -100 Above-ground stocks 2,315 2,145 2,045 * Source: World Platinum Investment Council, Platinum Quarterly Q3 2016

Platinum: A Fundamental Analysis

Summary

Platinum has been in a supply deficit for nine of the last 12 years, with 2016 expecting another deficit.Cost of production per ounce of platinum exceeds price per ounce.Above-ground stocks of platinum rapidly depleting.The platinum/gold ratio suggests platinum is cheap relative to gold and should correct in the near term.

In our current global economic environment, there has been sufficient distraction from the opportunity that platinum presents. With all the focus on Brexit, the woes of the EU, China's real estate bubble, gold, and the Fed's rate decisions (or indecisions), it is easy to understand how one could overlook the potential that platinum provides. In fact, according to theWorld Platinum Investment Council (WPIC), Platinum ETF holdings have been reduced over the last three quarters; paradoxically, these ETF outflows have been contrasted by sizable coin and bar purchases begging the question: who is right - physical or paper investors?

I believe there is persuasive evidence provided by fundamental and technical analysis that supports my assertion that platinum is set to rise in price in the area of 40% in the next four years. Leveraged miners should see gains far in excess of platinum's potential price move.

Overview of Platinum

Platinum is fifteen times rarer than gold and is costlier to produce. As a result, it has historically traded at a premium to gold. In the last 40 years, platinum has only been priced at adiscount to gold four times, each time lasting less than two years.

Global platinum mining supply is 70% sourced from South Africa, 13% from Russia, 8% from Zimbabwe, and the rest from various other countries. Platinum recycling also accounts for 23% of total global supply. Major sources of demand include 40% automotive (catalytic converters in exhaust systems), 35% jewelry, 20% industrial, and 5% for investment.

Platinum is, as of Oct. 18, trading at US$938.80/ounce, a $322.50 discount to gold which is trading at US$1,261.30/ounce. In other words, platinum is trading at a 26% discount to gold when it has historically traded at a 50% premium.

Demand

Demand for platinum has been stagnant for the last six years. A retreat in investment was made up by an advance in industrial use. The major source of demand for platinum is in the automotive industry as an anti-pollutant in catalytic converters. China is the largest fuel combustion vehicle market and shows little sign of stopping its growth in this industry. The China Association of Automobile Manufacturers reports this year's August sales, and production, to be up, year over year, 23% and 28.9%, respectively. Global car production growth is expected to slow, but 2016 is still anticipated to produce 89 million cars, up from 88 million in 2015.

Jewelry demand is up 3% in Q2 of 2016 from the prior quarter, indicating momentum. India, after a brief strike, has seen an astounding 25% year-over-year increase in Q2 2016 in platinum jewelry sales. A drop in the number of Chinese wedding registrations resulted in a 4% year-over-year decrease in platinum jewelry demand from this Q2.

Industrial demand has been making slow advances in recent years, increasing by 1% each quarter since Q3 2014. Industrial demand, in order from greatest to least, is sourced from chemical, medical, electrical, glass, petroleum, and others.

Platinum investment has seen three quarters of ETF outflows but these have recently tapered and are dwarfed by the increase in physical investment demand. In 2015, bars and coins increased by 525koz, while ETF holdings decreased by 240koz. Japanese coin and bar investors led demand in the first two quarters of 2016, recording an increase of 140koz and 110koz in Q1 and Q2, respectively. Interestingly, in the U.S., 10,000 American Eagle platinum-proof coins were made available this past June and sold out in under an hour. There seems to be a disconnect between investors who prefer physical platinum and those who prefer ETF holdings; the former being bullish and the latter bearish.

Given these figures, I believe platinum demand will grow slowly and modestly over the next few years as more motor vehicles are produced, jewelry-consuming Chinese and Indian middle classes grow, and significant investor interest returns, particularly from the ETF segment.

Demand (koz)

2013

2014

2015

2016* estimate

Automotive

3,165

3,300

3,405

3,390

Jewelry

2,945

3,000

2,880

2,885

Industrial

1,480

1,535

1,650

1,625

Investment

935

150

305

350

Total Demand

8,525

7,985

8,240

8,250

Source: World Platinum Investment Council

Supply

Global platinum supply has been fairly even for the last four years, with a dip in 2014 due to a five-month strike in South Africa. The strike, due to union wage demands, resulted in 1,200koz of lost production, equating to US$2.25 billion. Modest wage increases were agreed upon and are to be implemented over three years; normal operations and production have since resumed.

Total global platinum supply for 2016 is expected to be 3% less than in 2015. This is partly attributable to safety stoppages due to an increase in work fatalities in South Africa's major platinum region, Western Limb. In addition, the spot price of platinum is well below the cost of producing an ounce, which discourages producers to produce, reducing the supply (more on this later).

Platinum recycling provides 25% of the total global supply and seems to correlate with the price of platinum. Interestingly, the last two and a half years have seen jewelry recycling subdued to only 500koz, down from its average of 794koz for the prior four years. This could indicate that holders of platinum jewelry are of the belief that a price rise is due and are in wait. Steel is also seeing a price recovery, which lends incentive to scrap vehicles increasing platinum recycling in the short-term; however, the World Platinum Investment Council estimates platinum recycling to increase by a modest 2% in 2016.

I believe global supply will continue to decrease at a modest pace because the price of platinum per ounce is below the average cost of production per ounce: producers prefer to produce at a profit and slow down production and deleverage when their wares are in cyclical lows. Moreover, South Africa, supplying 70% of global mining supply, continues to harbor political, union, and economic risks posing a threat to future supply.

Supply (Koz)

2013

2014

2015

2016* estimate

Total Mining Supply (Total refined production net of producer inventories)

5,855

5,230

6,195

5,985

Recycling

1,980

2,035

1,710

1,745

Total Supply

7,835

7,265

7,905

7,730

Source: World Platinum Investment Council

The Deficit and Depletion of Above-Ground Stocks

As mentioned, platinum has been in a physical deficit for nine of the past twelve years, with 2016 expected to post another deficit. The last four years have seen deficits on average of 521koz, 6.8% of average total demand for the same period. Demand-supply imbalances affect pricing, which in turn corrects the imbalance: simple economics.

In platinum's case, large physical above-ground stocks have been delaying this self-correcting imbalance. Using 2016's expected deficit from the World Platinum Investment Council, the deficits have averaged 6.75% of total demand in 2013-16. This is a significant amount of demand not being met for numerous years. As a consequence, above-ground stocks are being depleted each year by the amount of that year's deficit. The depletion rate is starting to accelerate as deficits remain steady but stocks diminish, with full depletion in early 2020, by my calculations.

Once demand can no longer be met by these above-ground stocks, the price of platinum will be forced upward by the market. Due to the foresight of market participants, I believe this price increase will occur well before the above-ground stocks fully deplete as the market wakes up to the imbalance. This view is supported by the belief that platinum supply and demand is set to remain stagnant over the next year, maintaining the deficit. Have a look at the table below for an eye-opener.

Year

2013

2014

2015

2016

2017

2018

2019

2020

Total Demand

8525

7985

8240

8250*

8300*

8350*

8400*

8450*

Deficit

690

720

335

520*

566**

566**

566**

566**

Above-Ground Stocks

3450

2730

2395

1825*

1259*

693*

127

0

Depletion Rate

21%

12%

22%

30%*

45%

82%

100%

* Estimates using data from 2013-16

**The deficit of 566koz was derived from the average of 2013 through 2016

(All platinum figures in Koz.) Source: WPIC and personal calculations on estimates from 2017-20.

Costs of Production in Excess of Price

Another factor that will put upward pressure on the price of platinum is the current price of platinum being lower than its average cost to produce. Producers operate for a profit, as corporations are legally required to do. Therefore, if platinum is currently trading at US$938.80 and the cost to produce an ounce is around $1,209, producers are losing $270.20 each ounce they sell, a 22% loss.

This is unsustainable for any business and is forcing producers to deleverage and eventually reduce output. In fact, a brief glance at some top platinum producers' balance sheets shows severe deleveraging, retained earnings capitalization, and borrowing. Anglo American Platinum LTD, the largest producer, has seen its 2015 total assets fall below 2014's. Lonmin PLC has seen its 2014 total assets shrink from (in millions) 4,365 to 2,429 in 2015.

In any case, it is unsustainable and inadvisable to sell for less than what it costs to produce. Cheap debt, retained earnings capitalizing, and deleveraging can only keep the boat afloat for so long. Investors can expect a reduction in output, and thus, supply, leading to higher platinum prices, given a stable demand.

The Platinum/Gold Ratio

Historically, platinum has traded at a premium to gold due to it being rarer, having a larger industrial demand, and having a higher cost of production. There is a reason why it has been termed "rich man's gold."

Currently, the platinum/gold ratio is hovering around 0.76. Platinum hasn't traded at this deep of a discount since 1982. The lowest the ratio has been in recent history was 0.73 in 1985. Moreover, platinum has only traded at a discount to gold four times in the past thirty-five years, each time lasting less than two years.

Past performance can't tell us future performance, but trends do exist and can complement fundamental analysis. Platinum and gold's relationship does tell us that either gold is overpriced, platinum underpriced, or a new norm has begun. Gold could be overpriced, but it does serve as a hedge against equities and fiat currencies. Uncertainty isn't about to leave the markets, so I believe gold has found a strong resistance around $1,200/oz, but this is speculation. A new norm of platinum being priced below gold seems unlikely due to its rarity compared to gold, cost of production exceeding gold's, and historical trends. Therefore, it is likely that platinum is underpriced and a reversal of the discount-to-premium is likely in the near term.

The platinum/gold ratio hit its peak in January, 2001, at 2.34 and another sub-peak in May, 2008, at 2.31. I wouldn't expect to quite see these numbers, but even halfway of 1.17 would take platinum to $1,474/oz (gold at $1,260/oz x 1.17). This is a 53% increase from today's prices. According to PMTREND, the platinum/gold ratio has averaged 1.4 for the past 25 years. If gold remained at $1,260/oz, then platinum -- should it revert to its 25-year mean -- would be priced at $1,764/oz, an 83% increase from today's prices.

Words of Caution

I should make myself clear that I believe platinum has great potential in the short to medium term. In the long run, platinum does have some headwinds that should be considered.

Electric vehicles (EVs) don't need platinum and are gaining market share. Some believe EVs to rise to 35% of global car sales by 2040; however, in the next decade, the conventional car will still be a cheaper alternative to EVs and still dominate global sales.

Interestingly, Anglo American Platinum, Lonmin PLC, and Impala Platinum are investing in fuel cell tech, which, by combining oxygen and hydrogen over a platinum catalyst, generates electricity. Critics of this technology raise the issue of hydrogen refilling stations costing more than EV charging stations.

Platinum has a substitute for automotive applications: palladium. Palladium is currently trading at US$653.50/ounce. Therefore, it is a cheaper substitute but it has a higher sensitivity to poisons that renders it less effective than platinum in this regard. Moreover, palladium, also largely sourced from South Africa, has seen recent supply deficits that could see upward price action. Also, diesel vehicle catalysts can't use palladium and so provide a protective moat on platinum's automotive demand. Western Europe still has sales of diesel vehicles making 58% of the market.

In any case, I believe the use of platinum in the automotive industry won't subside in the medium term.

Conclusion

An analysis of platinum presents a strong case for a price increase in the near-term. The rapid depletion of above-ground reserves that are expected to run out in early 2020 will put upward pressure on platinum's price at a much earlier date. The average cost of production per ounce exceeding the price of platinum per ounce has been causing producers to deleverage and will force them to reduce supply; given a stable demand, this will put upward pressure on the price. Lastly. the platinum/gold ratio is near all-time lows at 0.76 and has never lasted below 1 for more than two years in the last forty years.

Investing in a platinum producer will magnify returns in a rising-price environment. I will be writing an article on prospective platinum producers in the coming weeks. If you found my article informative, I encourage you to follow me.