StoneX Group Inc. (SNEX) Earnings Call Transcript

Welcome, everyone. Thank you for taking the time to join us for today's event, Global Metals Market Interim Outlook 2023. Before we get started today, I will walk through some brief housekeeping notes. [Operator Instructions] Additionally, we are recording this session, and it will be sent out once approved by compliance. So now I'll pass this over to Rhona O'Connell and Natalie Scott-Gray to start today's event. Rhona, Natalie, over to you.

Kerri, thank you very much for that kind introduction. Good morning, good afternoon, good evening to all of you wherever you may be. It's a pleasure to be talking to you all again, and thank you for joining us. I will go very, very quickly through the disclaimer form because it's mandatory, obviously. And then what I'm going to do is give you a very brief overview of what we're going to do. And then Natalie and I will talk again very briefly about the activity in markets over the past 6 months, and that really will be brief because it's much more important that we look forward. So the first thing I must do is offer you all a huge apology. There is an error in this chart, and it's my fault, it's entirely my fault, and it will show also in a couple of tables, which is that the platinum activity, the platinum [ form ] in the first half of this year was not 48%, it was 15%, which is entirely my fault not data manipulation. What it does not do, though, is affect the expectations for the outcome or indeed for the banking also metals as we come through towards the end of the presentation. So my apologies for that. But essentially, what we've got here, and Natalie is going to join me on this one, talking about the base metals. We've got something of the order of a 16% improvement in the S&P, and this is all for the 30th of June. It's not year-to-date just at the end of the first half year. And go over the only metal which was in the black with a gain at that point of just over 5%, which is not that [ great ] considering the dollar was flat. And if we skip further up, I have -- still they're underperforming, which is not that surprising given the state of the economy. We'll come back to that towards the end of the presentation. And then towards the top, as I say, no platinum, but palladium and rhodium, tell their own story. This is all to do with the long-term outlook of the internal combustion engine and the electrification of fleet. And what that means for those 2 areas which are key for those 2 metals in terms of the changes in not just outright demand, but also what it does for the return of secondary material and how it affects the balance of the market in the longer term. So that's essentially what the precious metals have done. So Nate, if you'd like to take it away on the base, and I shall return shortly.

Of course. Thanks, Rhona. So coming to the base metals as a whole, unfortunately, they are almost entirely in the red this year with only 10 posting gains on a year-to-date basis. Now this is being driven by the fact that macro headwinds continue to dominate price direction as they have done over the last 18 months. And as it stands, the macro landscape is causing growing concerns over the demand picture for these metals. Now looking at the base metals individually, it's no surprise that nickel remains the worst performing as prices are still recovering from hitting all-time highs in 2022 upon the short squeeze. Meanwhile, on the other end of the scale, in short market, though it's short market -- a small market size and recent supply issues is a key driver behind its robust performance. That's very briefly on the base metals, we'll be going into a lot more detail later. But back over to you, Rhona.

Okay. Thank you, Nate. In essence, this is what we're looking at, continued bifurcation across the 2 hemispheres East and West. And Natalie in particular will be talking about China, while I -- and Asia -- while I concentrate on the Western Hemisphere. And there will be a brief reference to the way China, Russia, India, totally to an extent and possibly Brazil. In other words, some of the old BRIC nations are getting closer and closer together in terms of trading partnerships. But we'll come back to that again a little bit later on. We break it into the industrial metals, PGMs and silver and gold and metal conversions. And as always, we're going to invite you to participate and have some fun because we're having our usual polls about which metals did effectively the best and the worst performance over the course of the year. So to set the scene for exactly that, this is what they've done, as I say, platinum is down 15%, not 49%. But this is what they have done as a whole and over the course of the first half of the year. So what we're going to ask you to do is to give us your view just for the performance from the 1st of July through to the end of '23, purely a 6-month view not a longer term. So you may want to look at the performance year to date or first half of the year and then think about your overview on the fundamentals and we will give you, let's be generous, we'll give you between 15 and 20 seconds to make your decision. As of now. Another couple of seconds. Just waiting for the list to populate. We will come back to that and see what is happening here. Okay. Well, let's see if that populates over a period of time. Same question, except in reverse, which metals do you expect to be the worst performer in the second half of the year, and we will do the same again, we'll give you 10 -- 15, 20 seconds. Let me cover second, as of now. And here we have the worsts. So what we have, aluminum and palladium, pretty friendless. No words for silver, zinc or tin. So that would suggest that that's the way that the land lies and people are pretty neutral about most of the others. Okay. Right. Thank you, everybody. Now let us take a look, what surprise you in the slide. It's is that part of the key focus and the first part of this presentation is going to be the American economy with particular focus on what the [indiscernible] has been doing. Those of you who are not familiar with the dot chart. These charts, one on the left is from the March meeting, one on the right from June meeting. The FRMC has 8 meetings in the calendar year and in 4 of those, March, June, September and December, they push out what they call their special economic projections and the dot platform is part thereof. And essentially, each dot represents the expectation on the part of each individual member of the committee as to where they expect the Fed funds target rate to be at the end of this year, at the end of next year and then over the longer term. And basically, what we saw was, obviously, we didn't see any Fed fund rate hikes in this most recent meeting. But we did see the dot chart outcome. And essentially, it's not as focused as you might have thought actually. I'd say in March, the majority of committee members were looking at between 5% and 5.25% as the end to 2023 band. Now they're only up by 25 basis points, they're looking for between 5.5% and 5.75%, oh sorry -- 50 basis points. And next year, they had been looking at 4% to 4.25%, now they're looking at 4.25% to 4.50%. So there's not a huge amount of change. They've pushed it that a little bit further out, which probably won't surprise anybody, very much. The dual mandate is still the key in terms of 2% inflation and full employment. We're not back to our full employment to be fair already, 2% inflation is clearly quite a long way, hence. But one of the comments in the June statement was of robust stock gains in recent months, low unemployment elevated inflation. And this is a theme that's been running through consistently from the last few months. And it's not going to change. More recently, Jay Powell and -- he has finally addressed the Congress, he underlined that more hikes are on the way. And the implication was to [indiscernible] for this year. But he kept on tinging to the point that the 2% target is "a long way to go." Although there are increasing voices suggesting 2% is too difficult and that they may have to change their rationale. And moving forward, the minutes of the meeting came out last night, which was good timing as far as my part was concerned. So just to give you a flavor of what they were saying the staffers, we're talking of the economic situation, they actually dropped the main reference to tightening bank credit conditions, but that's not surprising given that by that stage. the Fed, [indiscernible], National Bank have both been pretty nimble in injecting liquidity and actually taking the failing banks out of the system. So the market was gaining in confidence as far as banking positions is concerned, but I think we should warn people, the banking stresses do not disappear overnight. I'm not a banking analyst, but obviously, I read some who are, and I've seen plenty of warnings of potential stress continuing through the system, not just in the state, but also in Europe, in particular, due to higher rates and the weaker housing market. And it was noted that in the financial review, the staff did allude to bank's ability to fund "remaining somewhat strained" relative to before the closure of SBB in March. So that elephant is not quite in the middle of the room, but it's sitting in the corner and it's not going away yet. The starts on employment was also unchanged, but they did note that as far as consumer price inflation was concerned, it stayed elevated. It eased a little bit since mid-2022, but in April, it was a little changed from January. So there's a word of caution there also about efficient obviously. But the other element which was interesting was the committee members, i.e., the people who actually vote, all the different presidents and the different federal reserve boards across the country. They were slightly more cautious than their overview of economic prospects, and they introduced the word uncertainty over the [indiscernible] with which monetary policy affects the economy. And similarly, the effect on the economy of tighter credit conditions was deemed to be uncertain. And it does appear that this will be under scrutiny in the weeks and the months to come. Now these -- I'm not going to go through all the different bullet points on this chart. They were -- since they will be sent to you. But essentially, what we're looking at here is the financial sector, and you can see that the 2-year spread -- between the 2-year tenure spread, that is even more inverted now than it was. And in fact, it's something like minus 110 points now, and the forecast is going out to 130. The point I would make here, and this is actually relevant for gold as well, is that normally 2-year tenure and indeed 3 months of tenure are indicators of the market's views about the possibilities of recession. This time around, that is certainly a key element to it, but there is another point here, which is that the treasury now that the debt ceiling negotiations have been kicked on -- kicked down the road. The treasury is expecting to issue more notes and that is one of the reasons why the 2-year rate is as high as it is. And that also is -- actually that is a tailwind for gold because gold has been concentrating very heavily on the interest rates and Fed policy over the course of the past, well, coming up for 18 months now. The minutes, if we look further forward again, the minutes do also talk about early signs of problems. They weren't that focused, but there were elements in there, which were sort of nestled in the [indiscernible]. There were some factors evident with a couple of participants noting the discrepancy between robust GDP and weak GDI, which is gross domestic income, suggesting that economic momentum may be less strong than GDP would suggest. They weren't seem to be getting a weakening in the labor market, but numbers which came out just now also before we became aware, they have reversed that. We had strong numbers with the addition of some like [ 0.5 million ] [indiscernible] U.S. economy in the past months. Weekly finance related benefits were relatively low in terms of their increase, continuing claims were at the lowest levels since February. Dollar rocketed, gold off by $20 in the space of about 5 minutes. So it's all still a little lower all over the place, there is still plenty to play for, but the Fed rather like the European Central Bank has still got to trade egg shells. Christine Lagarde remains firmly hawkish. When the Fed paused in June, she had a meeting the following day. And she alluded to the FRMC when she made her presentation after the ECB's meeting and made it abundantly clear that the ECB wasn't causing now [indiscernible] in the foreseeable future. Inflation is too high and will be for too long. And what was interesting, in particular, was that she expanded on that at the ECB's Annual Central Banking Forum last week. And when she was talking about European inflation, she slotted into 2 phases. Phase 1, which we believe is now more or less through was the period during which the workforce was basically suffering from falling real wages, partly because different stakeholders in different parts of the economy were not quite [ pushing here ], but near enough, pushing costs increases onto each other. And basically, that always being handed around the market. Now that seems natural work its way through. But what she is now concerned about is productivity declines, which is not helping the economic activity, obviously. And at the same time, the ECB is expecting European real wages to be up by 14%, that's 1-4-percent, by the end of 2025. So the ECB and the Fed between them, frankly, they've got to work that out. So before I hand over to Natalie to talk to you about the Chinese economy going to industrial metals. Here is a chart which fold all 3 of them together. The dotted lines are the yield curves of a month ago, and the solid lines are the yield curves. So when this chart was put together, which is actually about 10 days or so ago because we had to go through compliance and so on and so forth. But the pattern remains still viable. Now you can see the tightness or the increasing yields across the shorter [ tenors ], better [indiscernible], better compliance are in the states. Similarly in Europe, but at a low level. And the Chinese yield curve is much more logical and what you would expect from improved from a recovery economy. On which note, I will hand over to Natalie, who will talk you through the expectations for the development in China in recent months and looking ahead.

Thank you, Rhona. So turning to China. How the surprise dropping of COVID-19 lockdowns in January resulted in forecast lifting for GDP growth and economic recovery in the country this year with the World Bank in its latest report in June, forecasting growth of 5.6%. This is a stark difference to just 3% in 2022. However, with 6 months of the year gone, it is apparent that the reopening has not solved all the issues within the country and despite Q1 GDP coming in at 4.5%, which is its highest level in the year, the latest set of key economic readings in the country have disappointed. So if we have a look at where we are in reality, on the left-hand side, I put in a chart here, which is showing the key economic readings in China on a year-to-date basis from the end of 2022, which is the gray bars versus May, which is the blue bars of this year. Now what we can see is that only retail sales and residential property sales have recorded gains since the end of last year. Meanwhile, although industrial production and fixed asset investment have recorded advances in activity this year, they remained below last year's levels. While exports, imports, property investment, and industrial profits remained in the red. Therefore, given this, both the government and the Central Bank have increased their actions in recent weeks in order to make sure that 2023 GDP comes in on target at about 5%. So what have we seen? Well, the Central Bank moved to the cut series of key interest rates in May, marking the first time that these rates were cut in almost a year. While the government have announced it will increase targeted stimulus with the premier stating that Q2 GDP will accelerate from Q1 levels, which were the highest in the year. However, despite this increasing optimism for higher growth in the second half of the year, we are cautious about the outlook for China's recovery. Because firstly, we do not expect to see this promise stimulus, reach the levels recorded in the past because the country want to try and avoid fueling asset bubbles. Secondly, we forecast that the deep-rooted issues within the property market will have a multiyear recovery time line, especially as consumer confidence remains a key problem here. It's also important to note that over the last 2 months, there's been a resurgence in developers defaults on loans, which is a large downward risk considering that the property market makes up 1/5 of GDP growth. While finally, exports, which have been a key driver for Chinese growth is set to remain weak this year as the impact of higher interest rates for longer in the West comes into full effect in the second half of the year. Now just remaining with China, we'd like to highlight that we see any escalation in geopolitical tensions as a significant downward risk to global growth this year, particularly between China and the U.S. Indeed, at the start of this year, the relationship between the 2 countries hit a low point with the China's President, its state media and the new foreign minister using arguably the most provocative language against the U.S. in recent times. And while we've seen some calming of the waters following an in-person meeting between President Xi and the U.S. Secretary of State last month, in addition to the fact the Janet Yellen has just arrived in the country today, Again, here, we remain cautious. Furthermore, we'd like to point out that trade flows have significantly changed over the course of the last 18 months with China increasing its imports of Russian commodities. So in the table here, we have year-to-date figures of imports. Now the 2023 figure is showing the January to May year-to-date performance. And what we can see is that China is favoring Russian energy products palladium, aluminum and wheat. Now we do forecast that trade between these 2 countries will remain robust in the years ahead. Now if we come on to the second point in our agenda, we're going to start with the industrial metals. Now last time we spoke in January, we highlighted that the industrial metals were the worst performing commodity sector in 2022, driven by a perfect storm of macro headwinds that resulted in manufacturing slumping far below the peak level that was recorded in 2021. And if we look to where we are now, unfortunately, the situation is not much better, with industrial metals, the second worst-performing commodity sector this year behind Energy. Now if we looked here base metals on their own. In this chart, I've got the weighted average of the 6 metals that make up the base metal suite, and this is known as the base metals index. Now here, we've highlighted just how significant leading macro forces continue to be on price action this year. So we can see at the start of the year, optimism surrounding China's surprise announcement to drop in entirety, it's zero-tolerance stance on COVID-19, this boosted the index. But optimism was quickly dented by weakening expectations of growth outside of China, following hawkish comments from Federal Reserve Chairman, Jerome Powell, in the February FOMC meeting in which he suggested that rate cuts would be off the table this year. If we then look to March to where we are now, the downward trend in the index has predominantly been driven by, firstly, disappointing economic numbers coming out of China highlighting that a rebound in recovery is not occurring at the pace we thought that it would. And secondly, because the market is posting in higher rates for longer in the West, with inflation remaining sticky, once again, lifting concerns of demand outside of China. If we take all of this into account, it's no surprise that the year-to-date price performance of the base metals to be down by 8% year-on-year. However, of course, the index of the base metals can only tell us so much. So over the next several slides, we're going to dig into the underlying fundamentals for each of our metals for the suite which we can see in this table certainly does separate out price performance. We're going to start with the best to then the worst performing base metal on a year-to-date basis. So starting with tin. The tin has been the best-performing base metal of 2023, overtaking out of copper since the start of April. And this is a stark contrast to 2022, in which, in fact, it was the worst performing of the suite. Now the key driver behind this robust performance has been growing concerns over supply availability, in which, firstly, Myanmar's war State announced that, "mines will stop all exploration, mining, processing and other operations" by August 2023. And this was in order to protect the country's remaining tin resources. Now it's important to note here that Myanmar is the third largest tin producing country in the world, and it's also the largest exporter of tin to China, last year alone accounted for 77% at the time of imports. Now in addition, on the supply side, secondly, we've heard from the International Tin Association, in which they announced that within China itself, a handful of major smelters were going on extended care and maintenance with all output already having pulled back in May across key regions. Indeed, May production across the country is down 8.3% month-on-month and 12.2% year-on-year. However, these supply concerns, which have resulted in a widening backwardation on the LME in recent weeks are being tempered by the fact that demand is only forecast to be moderate this year, particularly given the rotation away from goods in favor of services in this post-COVID-19 landscape. Indeed, this weak demand outlook is being reflected in rising global inventories, which you can see in the chart on the right-hand side, which have jumped 22% and 62% on the LME and the Shanghai Futures Exchange, respectively. So in our base case, presuming that the Myanmar announcement is less severe than threatened. We forecast that supply will outstrip demand this year, moving tin into a balanced market for 2023. Now coming to copper. Despite negative price performance year-to-date, arguably, copper holds one of the more favorable fundamental pictures across the suite this year. With 2023 forecast to record a fourth year of deficits. Please note, this is an alteration to our view at the start of the year in which we forecast a more balanced market. Now this change has been driven by weaker-than-expected mine production and shipments of key producing nations within South America, like Chile and Peru because these countries face challenges from weather-driven droughts to protests while global visible inventory stocks by April had winded down to their lowest level in our records. Having said this, over the last month, the supply outlook has improved with protests in Peru subsiding while exports out of the DRC have resumed with China's CMOC Group reaching a deal over royalty payments. Now here, we expect as much as 200,000 tonnes of copper could be exported out of the country in the next 6 to 8 months, placing the congo just behind that of [ Peru ] as the third largest copper exporter Meanwhile, within China itself, domestic output posted on record high in March amid plentiful concentrate supply with Chinese smelters lifting their treatment charges this year. Now looking to the demand picture, it is forecast to struggle over the next 6 months with this impact of higher interest rates in the West coming into full effect, while construction and manufacturing within China remains somewhat muted. We do forecast, however, that targeted stimulus will help guide copper demand higher in the months ahead within China, but below levels forecasted at the start of the year. Please note, green demand for copper will remain our fastest-growing sector of demand. Now the aluminium market is forecast to remain in the deficit this year albeit at a smaller level than it was in 2022. And this is being driven by a low global stock environment, plus a rebound in demand and a continued tightness on the supply side. Now looking at refined supply, despite the pullback in energy prices from peak levels last year, over 50% of European production still remains idled with falling LME prices and weakening premia eating away of revenues. Meanwhile, within China, a lack of rainfall in the southern provinces had resulted in power rationing and lower output of aluminium over the first half of the year. That here, we do forecast that production will improve upon the turn in the season, resulting in a global rebound in supply from last year. Additionally, on the supply side, we're currently seeing near-term tightness with warehouse stocks running a low of non-Russian material. And this has been a key contributor to aluminium's more robust performance over the other metals in the suite in general this year. Please note, current LME warehouse stocks only 32% of them are non-Russian origin, and this is based on the May LME report. The next LME report will be out on the 10th of this month. So it will be important to watch what changes have occurred there. Meanwhile, on the demand side, growth is set to remain at low levels this year, although the demand picture will continue to improve as we head towards the end of the year, and this will be driven by [indiscernible] consumption from the green transition. In addition to pent-up demand in the automotive sector as supply chains unwind. However, falling industrial production and construction demand on a global level will partially offset this. Now if we move over to lead, lead's price performance this year has remained much less volatile than recorded to the other metals in the suite. With lead here holding on to its unique characteristics, which has lower exposure to primary supply risks with 2/3 of supply coming from secondary sources, lower exposure to primary demand risks or recession risks due to the majority of demand coming from automotive lead asset battery replacement, while its relative illiquidity and commonly misunderstood role in decarbonization leads the metal as less attractive to investors. Looking to the fundamentals, our key takeaway for refined supply is that we forecast a universal rebound in production this year. And by Universal, I mean both within and outside China and both within primary and secondary output. And this makes a big change to 2022 to which really could have been called the year of bottlenecks. Now the improving supply situation has been supported by the reopening within China, boosting secondary output within the country, or primary output outside of China have been lifted by falling energy prices, resulting in the restart of key smelters within Australia, Canada and of course, Europe, particularly here, Nyrstar Stolberg, which is responsible for 8% of European production and has been offline since the summer of 2021. It started again in April this year. Meanwhile, on the demand side, we forecast that 2023 will be a year of demand growth. After an outright contraction last year, with China, the key country of growth, again, is high interest rates in the west than demand in addition to a warmer winter than it was expected in Europe. So therefore, for demand outside of China, we think growth will actually remain flat year-on-year. Moving to zinc, aside from nickel, it has been the weakest performing base metal this year with a sharp downturn in prices occurring in April. This was actually reflected in investor sentiment, which remained in net short positions since this time across both the LME and the Shanghai Future Exchange. And this can be explained with the muted outlook for demand this year, particularly within zinc's largest end-use, the steel industry, where zinc is used as a coating to the metal to avoid corrosion. Now indeed here, the World Steel Association has forecast that persistent inflation and rising interest rates is limiting the recovery of steel demand this year with global production output forecasted lift just 2.3%. However, this is an improvement from last year, which production actually contracted by 3.9%. Now having said all of this, the reopening of China has resulted in steel output jumping 3.4% on a year-on-year basis. This is over the January to May period and with demand set to improve in the second half of the year, we do forecast that net imports of zinc into China are less from all-time lows in 2022 to over 200,000 tonnes this year, reestablishing China as a leading net importer of the metal. Well on the supply side, falling energy prices within Europe has resulted in partial results of idle capacity after as much as 25% of European production was up line last year. And this, combined with plentiful concentrate supply within China has led to our forecast that output will return to levels reported in 2021 and with the fastest jump in growth since 2015. And finally, coming to nickel, which has been our worst performing base metal this year. Of course, it goes without saying that much of the price action we've seen over the last year has been a result of the fallout from the LME short squeeze in March last year, where nickel prices were artificially elevated to ranges non-consistent with the metals fundamentals while the lack of participation on the LME result in volatility. As it stands now, with nickel prices having been on a downward trajectory since the start of the year, the micro picture of nickel is returning in dominance. Indeed, despite nickel recording the most significant growth in demand this year across our suite on the return of stainless steel production and robust lithium-ion battery consumptions, record refined production out of Indonesia driven by new technologies, which is taking low-grade laterite ore to high-grade Class 1 nickel for the battery market via high-pressure asset leaching or NPI to nickel matte, it will move the market to record a second year of growing surpluses and nickel's largest surplus since 2015. So if we come to the big picture here, we do forecast a general weakening in the fundamentals across the suite. We have aluminum, copper and zinc posting a narrowing deficit, tin and lead flipping into a surplus and nickel posting a widening surplus. Now while we've discussed the macro picture and the micro picture for the base metals, we understand in order to take a view on near-term price movements and how they may play out. We must take account of what's happening with both global stock inventories and indeed a speculative market. So if we start with stocks, there's 2 main points I would like to highlight. So firstly, while global visible inventory stocks remain at a higher level than where they were at the start of this year, we are seeing an improving demand picture. Now we can see this in the chart on the right-hand side, where both LME and Shanghai Future Exchange stocks have been recording outplays since April. And secondly, while the previous statement is true, what, of course, you can see is that the outflow from the Shanghai Future Exchange warehouses, which is our light blue line, is occurring at a faster pace than from the LME warehouses. And this is an indicator that there is regional divergence in demand with the East outpacing that of the West, and we do expect that this trend will maintain over the course of this year. Now in our final slide for the base metals, I just want to look at current net investor positions for the base metals. Now these are net positions taken by investment firms, which reflect sentiment or the speculative narrative behind the metals. And at present, what we can see is our investment funds overdue have grown increasingly bullish towards copper, tin and lead with each metal holding or flipping into a net long position across each main exchange. Naturally, it's unsurprising to see that nickel arguably holds the most bearish position with the longest running net short position held. Our bearish sentiment is building towards zinc and aluminium and an uncertain demand profile. And with that, I will pass on to you Rhona to give you update on the precious metals.

Thank you, Natalie. We will start with the more industrial, in precious metals, and we'll kick off forward with the platinum group metals. And platinum to start with. Probably important to say at the outset here that while both platinum and palladium are expected to post small deficits this year, there are plenty of aboveground stocks. Some of those stocks are in firm hands, some in this firm, but there is no tightness in either of those markets over the next 12 months or so on the forward curves. So what we need to look at this time around is different from normal because ordinarily, the automotive sector, which is obviously a very important element in the supply-demand dynamics of platinum, palladium and for that matter, importantly for rhodium. That tends to dominate conversation. But this time around, the emphasis is much more on the supplies. The South African mining industry accounts for just over 70% of world platinum mine supply. But when you wind in the secondary material coming back from jewelry and autos in particular, that market share drops to 54% of total. And it comprises something of the order of 25% of palladium supply, but I'll come on to that later. Russia delivers roughly 9% of platinum and roughly 28% of palladium. Now in South Africa, it's been taking a fair number of headlines over the last 2, 3 years or so because of -- initially because of COVID, around and lately because of the continuing and recurring problems in terms of power supply, which actually goes back quite a long time, but it doesn't necessarily always hit the headlines, but no [indiscernible]. The problems that state power supplier, Ascom, have been persistent and the load shedding program over the past few months and for that matter, show a further disruption over the rest of this year has led more than one major PGM producer to reduce its "guidance" for projected production for the year as a whole. And indeed, this is not new, just for 2023, has happened before. Indeed, South African platinum production last year fell below 4 million ounces, really the third time in this century. The others being 2014, which was strike action and 2020, which was a combination of COVID and [indiscernible] having a problem with one of its conversion parts. Now Ascom has been having issues for some years in sourcing its own materials and negotiations with the government over possible -- possible [indiscernible] have been problematic. It's generally accepted that when no trading reaches level 6, it's equivalent to 6 gigawatts spend, despite a degree of refencing, this can affect the amount of power of the mining sector may consume. And the rule of thumb is that once you get to level 6, then they tend to be asked to reduce their power consumption by 15%. And that starts to have an impact on treatment emphasis. If it gets to level 8, which has not yet happened, it's something that's been postulated, but it's not happened as of yet, then mining activity itself could be affected. Very recently, there has been some improvement in power generation. And the company has also signed a 3-year labor agreement with [indiscernible] Solidarity, the 2 major mining unions, which gives a 7% increase in non-managerial salaries over 3 years, effective this past weekend, plus other benefits. This should help, but Ascom has warned that the forecast [ cold bridge ] could yet put further pressure on power supply. So there is always a possibility of some hiccups in supplies coming through from South Africa. That is more likely if anything to affect the forward curve than outright prices. Outright prices have to build in the demand dynamics, of course, as well. And to some extent, with autos accounting for between 42% and 45% of platinum demand and the auto industry remaining under some pressure, then the deficit, as I say, is only a small one. It's about 3 weeks' worth of this year. And thinking further about the automotive sector brings us on to supply chains overall. And you will see the chart on the middle right on the left-hand side of this slide. That is the New York Fed Global Supply Chain Pressure Index. And this suggests that at an overall level, the anecdotal evidence that we've been picking up over the past few months and particularly also when you look at the things like freight rates. The supply chain tensions have come back to more or less normal conditions, but this does not necessarily mean that all original equipment manufacturers can run it for capacity as their inventories of components would have been run down. But right at the end of the chain. The approach in production has been better in the States, in particular, in the first month than in the first months of 2022, especially towards the end of the third quarter. Prospects for the rest of the year are moderately good but poor consumer confidence and, of course, rising interest rates. And of course, they are always [indiscernible], still points to reluctance to spend on big ticket items, and we've seen some of that in some of the economic numbers that have been coming through, and it's reflected not just in autos, but also in the housing industry, which, of course, affects the raw material industry right away across the board. So if we then move on to the other side of the equator, and we move up to Russia. Norilsk Nickel is one of the largest producer of not just nickel but of palladium as a byproduct. And what we have seen from coming out of Russia has been related very largely, obviously, to the sanctions, the problems with the conflict with Ukraine and the potential disruption to supply chains within Russia itself. As a rollout of sanctions leading to the London platinum palladium markets to spending Russian brands as good delivery in London as of the -- I think, it was the 8th of April last year. Now in the event that actually turned out to be only a blip in liquidity, it hit London for a few days, but it worked its way through fairly quickly. And what we've got now is, as I mentioned at the outset is increasing some global bifurcation between East and West, and we have seen a very strong increase in tightness of relations between Russia and China. And palladium has been one of the particular assets, which has been shown up as one of the beneficiaries, if you like, to the extent that in the first quarter of this year -- and these are numbers that nationally generated. I can't take the credit for this one. Russia suppliers of palladium into China were up nine-fold by comparison with where they were in the first quarter of the previous year. So the industries are carrying on. It's relatively smooth. It's just not coming through London. What we do see is some increase in activity in Switzerland. But by the same token, there are clearly direct lines of command going between Russia and China. So that material is not now coming into Europe. Some of it is finding its way into the market through Dubai, however, and it is interesting to note that there is apparently Dubai is coordinating with Russian Industrialist at the moment to the extent that one Russian company told us recently during a PMI week that they actually refer to Dubai. Dubai [indiscernible] now because there are so many Russian people looking for business out there. But one of the things that is a key element -- and following that they [ agrees ] and the presstitutes of the palladium market, in particular, is the activity with respect to trade in and out of Switzerland. You will see here the middle one, these big bars here, that's the United States, net imports into Switzerland over the past 5 years. And that will give you an idea. Obviously, you see the highest bar here, which is 2020. That's the impact of the auto -- of COVID on the auto sector, supply chain is kicking in. The whole system grinding to something of a halt and the metal space, that we just come out and going to its terminal markets and a certain amount of it has gone into China. What I would say here is that whereas palladium is most important in internal combustion engines with respect to the oxidation on [ burning ] hydrocarbons. It's also important in the other elements as well as the oxidation of carbon monoxide to carbon dioxide, although platinum has an edge there. And it's less important with [ NOx ] gases, that's much more radiant by. But what we have been seeing over the past 18 months or so, is it because of the price ratio, and this is the chart over here on the left-hand side, that when palladium was 3 to 3.2x the price of platinum, this finally kicked some industrialists into reverse substitution because for many years, the story has been substitute platinum with palladium is cheaper. Yes, it's maybe not got quite such efficient continuity purposes. And in the [ back ] old days when there was a lot of sulfur and fuel, palladium was more easily poisoned by sulfur. So there was a kick back between the two. And then the sulfur came out of fuel and palladium was a beneficiary again. Now it's the other way around. Because of the way price action has been working, there's been a lot of research going on and a lot of it has been with mining companies in conjunction which refined as a semi-fabricated to build three-way catalytic converters so that platinum is taking some of palladium's market share with no noticeable deleterious effect on the after treatment in the exhaust system. And to that effect, the profile for palladium demand in the emission control catalyst sector over the course of the last 12 months has been flat, while on the same auto number production, obviously, better platinum has shown an increase of 12%. And that pattern is not going to change in the foreseeable future. There will come an inflection point where palladium prices forego platinum. But by that stage, the market is going to be much more concentrating on the electrification of the vehicle fleet than it is on the internal combustion engines. So palladium has a very difficult time ahead of it. There is some work going on to see how this can be alleviated. But for the time being, looking forward, and I'm happy to take questions on this in the interest of time I won't do it now, there is a saving grace for platinum. At the moment, there is not palladium [indiscernible]. So now we move on to that [indiscernible] of all those metals and that's silver. Silver is a wonderful metal to analyze. I'm very glad I don't have to trade it. It's a comparatively small market. It can be very volatile. Half of the time, they say, it's a precious metal, the other half of the time they think it's an industrial metal. And at the moment, what we're seeing is a correlation of 0.67% on a 1-year basis with gold and 0.45% of copper. There have been times over the past 2 years or so, when obviously, industrial output has been [indiscernible] when silver correlation with copper has been pretty much the same as it has been with gold. But for the time being, at least, it's back in the gold can. What we have is a gold price, which has obviously come off in recent weeks, and has brought silver down with it. Silver founds an interest round about the $22 level, and it's now holding steady between $22 and $23. But it's still fighting shy in terms of investment activity. Now when I built this slide, which was 3, 4 weeks or so on, the story was slightly different from where it is now. And you see, I've said there, the coin demand remains very strong. Well, that has, over the past weeks, that has fallen away almost completely. At this time last year, some coin dealers were able to command 70% premium when selling silver coins in the United States, in particular, partly because of the [ Mints ] allocation because the business is so strong. But it wasn't feeding through into the spot price, never does. It feeds through into the local domestic [indiscernible]. Well, that has completely fallen part. The latest premium from the United States, the numbers that I picked up yesterday, we were down to about $0.10 on one of our clients. And Europe is not much better. There's a bit of interest in Turkey. But when you take that together with the fact that the exchange traded funds are relatively flat, in fact, pretty much exactly flat. And that small bar interest has fallen away to a certain extent. The question is that we come to here, which is enough of the argument is, is investment activity going to be strong enough to absorb a 10-weeks industrial demand equivalent surplus this year in the way that it was capable of absorbing the 6-week surplus last year and the answer is no. Last year, we had very strong demand coming out of India, which was, to some extent, pent-up again, this is COVID issue. India as well as largest consumers of silverware and to a certain extent, coins. And imports into India last year on a net basis were between 10,000 and 11,000 tonnes whereas normally they'd be between about 6000 and 7000 tonnes. So they're more or less caught up with themselves, but the market has slowed down. We're only just now starting to see some interest in as prices will fall. And we put that together with coins and as I said, flat ETFs. And basically, the silver market bearing in mind also that supply will be relentless because only 25% of silver supply come from primary mines, is about 30% of mine supply. But once we built an industrial scrap recovery, which except an extreme as it's priced in elastic, then you've only got about 25% of primary supply coming supply coming through from primary silver mines. Very much like palladium in that respect. It's been forged to different metals. It's been forge to gold to copper and to then zinc. So even if you've got reduced demand from the industrial and the investment fraternities, the metal is still going to be coming out. So silver's outlook depends very largely at the moment on this one. Gold hit an intraday high of just over $2,090 in the first week of May. That was in the [indiscernible], the print went through as a high $2,074, I think, but we actually saw $2,019 at StoneX. And that was in response to the Signature and Silicon Valley Bank [ going down ]. It was then exacerbated to some extent when Credit Suisse included [indiscernible], we had [indiscernible] in May. Now the point about this is that I know I concentrated a lot on the Fed at the start of the presentation because that has been key. And basically, a lot of the markets have just been myopic, all they've been interested in is Fed and treasury rates. And in fact, the real rates are now positive as well. Now that has obviously been a key driver for gold activity over the past 18 months or so. Come March, the period of March to May and -- build actually catapult of itself right back to where it belongs, which is not necessarily as a hedge against inflation, but as a mitigator of risk. Depending on where you are in the world and the state of the economy, then obviously, if you're a small private investor who doesn't have access to sophisticated investment portfolio theory or investment instruments, then you will use gold as the hedge against risk and you use it as a hedge against inflation as well. If you are a professional investor and you're looking purely at inflationary forces, then you're much better off in something like [indiscernible] because gold is not a perfect inflation here. And that is basically what's been driving some of the dynamics over the past 18 months or so. But give us a good old banking crisis and for that matter, then rolling in market uncertainties about the debt ceiling negotiations. And that's where gold came into play. So it had 2 or 3 months in sunshine. Now I'll come back on [indiscernible] again. I think we probably have -- well, I think we've seen a high for the year just, but there are sufficient tailwinds in the market to see some support coming through. We're actually getting some support coming through already. And I'm actually in the [indiscernible], I think that there are sufficient geopolitical problems sufficient central bank interest, and I'll come back to that very shortly, and sufficient target hunting starting to build into the market now after these price falls, but the tailwinds are probably stronger then headwinds. The headwinds that I mentioned earlier, which I think is probably the key one at the moment is that another debt ceiling issue has not been resolved, but it's been pushed further out. And the Fed is actively issuing treasuries at the moment. This is what's driving the 2-year yield, and that's what's get built under cloud for the time being. That will eventually consulate I think the most important element here is what's happening in the official sector. Now official sector purchases on a net basis, were almost 1,100 tonnes last year compared with about 4,000 tonnes of old time production. And it's not just the tonnage that went into the official sector's [indiscernible], it was the message that the official sector was sending to the rest of the market. They're still sending that message. The chart to the bottom right here shows that if you take total gold holdings in the official sector and you market to market, I think it as a proportion of foreign exchange and gold combined, then it's about 12.5%. But you'll see the sort of caveat to the left here. That's actually skewed because that includes the United States, which by definition, can't hold dollars. It also includes all those nations in Europe, which have unrealistically high gold holdings as a legacy of having been on the gold center in the past. So my practice is to strip out those nations and then take the [indiscernible] component average across what remains. And if you do that, then at the moment, the build component to go and foreign exchange combined is just over 7%, which is pretty much in line with the portfolio theory. So it looks from the flows in the markets as if central bankers are there, I note that Kazakhstan was a light seller last month, but don't really speak of it, they are on the buyer side. And what I'm going to leave you with before I hand back to Natalie for the next set of [indiscernible] and to wrap up is the result of a survey that the world goes for the Gold Council carried out about a month ago, they do it every year, and they talked to a large number of central banks. And it's predominantly about gold. But what I think was key here, and I think this is going to inform investment activity over the next 2 years. And again, it goes back to that bifurcation as I was talking about with the big nations and some of the dollar trying to be sidelined by them. Half of the central banks are [ abade ] by the World Gold Council this year. But with the percentage of reserves in U.S. dollars in 5 years' time, that's just 5 years' time, will be between 40% and 50%. And now to put that into context for you, according to the IMF at the start of this year, that percentage was 60. So you're looking at reserves coming down by a sixth or a 1/3 over the course of 5 years from where they were. And at the start of the century, it was 71%. So those 2 statements point to the continued move away from the dollar as geopolitics involved. It remains dominant but it's under pressure. And if that really does happen, and there is going to be a long-term drag on the dollar, there's going to be continued geopolitical uncertainty about who actually has supremacy. And that ultimately is a gold case to go. So on that note, I will hand back to Natalie to complete [indiscernible].

Thank you, Rhona. So what this does do it brings us to our ranking table for the second half of the year. So these are our predictions on where we think metals will end the year, not average over the next 6 months. So this is where we think the price will end. And with this in mind, we would love you to answer the last 2 holding questions, which will be the same as we had at the beginning, but we want to see if your opinions have changed. So kindly, if you'd be able to answer our following question here. And the first one is which assets do you expect to be the best performer over the second half of the year? So from the price we are now till the end of the year. And I'll give you about 20 seconds to answer that, please. Right, last 10 seconds. Last 5. Let's have a look. So the best performer, the opinion at the moment is strongly in favor of gold. Then we have copper and the other metals, there's a little bit of a spread for you there. So let's just see if we had answers from the beginning of the presentation that we can compare this to. Right. So this is what the answers were when we first asked you at the beginning of the presentation. So has the view changed? Well, gold, no it hasn't. It's gold and copper that everybody thinks are going to be the 2 best performers. So very little change there. And then again, spread in between. Interestingly, we have some to nickel, some to platinum. Now if we do the same exercise, but we move to what you expect will be the worst performing metal over the second half of the year? If you could kindly also input your answers now. I'll give you another 10 seconds. All right, last 5. Okay, let's see what your answers said. So expecting to be the worst, what can we see? So here, it is looking as though in nickel is in high favor along with aluminium and palladium top 3 by the looks of this. And then still, there's quite spread views with the other metals, but it does look like aluminium, nickel, and palladium. And if we compare this to what you had at the beginning of the presentation. At the beginning, I mean it looks again unless I see anything different down here, also tin coming in, but again, the view seems to be unchanged from the beginning to the end of the presentation. So it is gold and copper, our favorites and aluminium, nickel and palladium seem to be the market consensus for the worst performing this year. So with that, that wraps up our presentation. Thank you so much for listening. We will very happy take your questions now.

Right. Looking to the question. So there's one that came in a while ago. This is for me on tin. So it says, what do you think about tin price in the second half of the year considering conflicting info like high backwardation, high stock levels, and weak demand now. So for tin, in my view, I think we're not going to have a stronger performance in the second half of the year as we have. Now one of the main reasons why we've had such a strong performance in the beginning of this year is because of the supply concerns with Myanmar also with some tiny smelters going out initially some import license issues in Indonesia in the beginning of the year. But I would say that all of that, it's fairly priced into the market now. And the reality is that over the second half of the year, demand is likely to be very moderate. We are seeing this because of the global visible inventory stops, they're lifting both on the LME, both on the Shanghai Future Exchange. So I would say that the acceleration in price certainly isn't going to be reflected in the second half of the year as it has in the first half of the year. The big picture that we actually have to the market fundamentals is that tin is moving into a very modest surplus for this year. But given that a lot of supply numbers at the moment, even if we look at exports out of Indonesia, the last month was slightly disappointing in May, but readings overall are actually much higher than the 5-year average that we have been seeing. And this high level of stock, particularly in China if the Myanmar announcement goes into full force, it will be able to cushion the impact of that. And I don't think that Myanmar are necessarily going to stop all mining and refining in the country. It doesn't make economical sense to them. We have heard them maybe sub announcements before and not carried through with them. And in the interim finance got stocks and it can also import from other countries like Nigeria, the DRC and also Australia. They have been moving away from Myanmar imports since COVID because there was a lot of supply chain bottlenecks that went on there. So hopefully, that answers your question, and we have our tin price forecast in the ranking table that we'll send out for you. Okay. Another question for me. I can see here and this one is for aluminium. So very similar. What do you think will happen to the price of aluminium in the second half of the year? So I'm more bullish for aluminum. So zinc, aluminium, nickel have been the bottom 3 worst-performing metals, particularly of late. But in the case of aluminium, Again, we have the situation where a lot of the demand weakness, the price has already been priced in. That has really been dragging the aluminum price lower. We do have very low levels of aluminum historically in the warehouses. So that's something we need to consider aluminium does have a very favorable investor side because of it's use in the green transition. I think demand in the second half of the year will improve from where we are now. We've seen a lot of destocking, particularly in the West occur in the first 6 months. So now particularly as China opens up, we should start to see demand in the second half of the year within China, and there will be this restocking again, which will underpin the demand side Meanwhile, I've also got my eyes on supply tightness in Europe, a huge story last year and it shouldn't be ignored this year. We still have 50% of capacity idled. And if we have a cold winter, this is the first time that Europe is going to survive without [indiscernible] of natural gas from Russia. So we do have well-stocked tanks of natural gas, but they are going to be drawn down given the fact that aluminium prices have been quite low premiums have been quite low as well. Those revenues might come into play, might be question might come under more pressure again. It's not necessarily that I think we'll see more capacity be idled, but it certainly means it could push back the restart dates. And when it does come to aluminium, there's a huge amount of capacity, about 500,000 tonnes that may never come back online because of what's happened with energy prices. And energy prices are still double what they were pre-pandemic. They've come down, of course, from the historic high we saw last year, but the situation hasn't gone away. So I think this improving demand, low stock supply risk coming back in second half of the year, it should underpin aluminium prices considering it's had such a weak performance this year already. Another one for me. So do you think that zinc prices can hold up at current levels by the end of the year. So I mean, this is a similar story that I'm talking with aluminium. It's almost all the same points I think that there is more upside for zinc. It is the most bearish or most of the metals with investors at the moment. I do think demand will improve in the second half of the year, especially for the steel industry within China, we're seeing this targeted stimulus to be implemented at the moment particularly for infrastructure, it does have a lagged impact. The stimulus has started many, many months ago. So do you think demand for steel will start to improve from where we've been. It's exactly the same as aluminium. We've got a very, very low stock environment. And the energy story in Europe also is the same. Interestingly, although a couple of smelters within Europe did partially restart this year. Glencore, Nordenham smelter, which is quite a significant portion of capacity hasn't come back online this year, and that's quite telling. If it's bringing a smelter back online, not only takes about 6 weeks, it's also very expensive. So you wouldn't want to bring the smelter back online to the higher energy prices and you have to take it back offline in a year. It doesn't make economical sense. It's better just to leave it on care and maintenance. And that's what Glencore has chosen to do. So that could be an indication that they're also cautious of what's going to happen with these energy prices towards the end of the year. With the demand pickup from China as well, as I mentioned in the presentation, imports into China are going to store from what they were last year. They fell to about 10,000 tonnes last year. Its lowest on record. We think that it's going to jump up to over 200,000 tonnes this year on a return in demand, and again, that's taking flows away from Europe and into China. So we will see this tightness, I think, play out and there's more potential upside for zinc as well in the second half of the year. So I hope that answers that question.