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You're listening to Strictly Business
Podcast with Lindsay Williams.

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Commodities have caught the eye in 2025
and there's so many commodities to cover

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that it would be beyond the

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scope of this podcast.

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So we're going to be focused on precious
metals, that's the PGMs and gold, and also

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the oil price.

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We'll have a look at that, the
fundamentals behind all of those

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commodities.

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And also at the end we'll talk about
copper, which has come late to the party,

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with me to do so.

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is Mohamed Dokrat from 91 in Cape Town.

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It's been quite a year, Mohamed.

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You must have been very busy.

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Yeah, thanks for having me, Lindsay.

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And I mean, it's been certainly
interesting in the commodity space.

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And I think broadly as a theme, coming out
of COVID, many supply chain bottlenecks

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were identified.

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And as we move into a more sort of
geopolitically fragmented world,

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we've seen the desire for many governments
to ensure production and to secure book.

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the supply of critical minerals across
many different sectors.

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And so this broad sort of theme has seen
relatively strong demand for commodities.

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And if you sort of factor in what's
happening on the supply side,

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this has resulted in pretty strong metal
prices across the board, but especially,

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as you mentioned,

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the precious metals.

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And if you look at the PGMs in particular,
we've been bullish on this.

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commodity for most of the last year.

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And there's sort of three primary reasons
why.

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The first is that the supply picture based
on our fundamental bottom-up modeling

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indicated

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that you were going to see lower supply
coming out of the primary producers in

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South Africa.

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And that's just the function of them not
having sufficient margin and capital to

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invest over the past decade.

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And as some of their older mines from the
1990s start to come to the end of life,

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we have not seen enough investment into
replacement or growth projects to offset

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this.

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And basically every year from here on till
2030 plus,

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we see a low supply coming out of South
Africa.

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If you add to that then what's happened on
the secondary supply market, you know,

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you've seen significant downgrades to
forecasts.

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relative to a few years ago.

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And there's basically just not been enough
scrappage of second-hand vehicles,

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which is the primary contributor to
secondary PGM supply.

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Do you think there's going to be in the
situation where there's actually a

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shortage of certain of the PGM basket?

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Yeah.

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And so if you look, you know, on our
fundamental modeling, And then we've got

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near to medium term.

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deficits for all three metals, so
platinum, palladium and rhodium, over the

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next two to three years.

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And in fact the World Platinum Investment
Council just put out their latest forecast

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which indicates an 850,000 ounce

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platinum deficit in 2025 and continued
deficits of about 600,000 ounces per year

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thereafter.

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Now on a market of 8 million ounces in
total that's a 10% deficit which is

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substantial in any commodity.

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I mean, in copper, for example, that would
equate to a 2.5 million ton deficit,

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and the market's getting excited about a
200,000 to 300,000 ounce deficit next

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year.

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So it looks quite constructive on that
metric.

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And, you know, as I mentioned, supply
certainly is the key driver over the sort

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of near term.

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But we also think that demand expectations
have been underestimated by the market.

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And, you know, talking about deficits in
PGMs would have been...

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seen as ludicrous just two years ago when
everyone expected battery electric

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vehicles to rapidly reduce the amount for

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pgms which are mainly used to clean up
exhaust emissions from combustion engine

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vehicles

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and so i think it was about two years ago
and the market thought that by 2030 bev

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sales would account for one in every two
cars but actually you've seen over the

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last year or

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two That estimate has dropped to about 30
to 35 percent of new car sales by 2030.

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And even there, there seems to be some
downside risks, just as the challenges and

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the cost of implementing this massive
energy

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transition are becoming more apparent.

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And if you add to that the fact that we
enter in a global interest rate cutting

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cycle where consumers

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might have more disposable income,

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the average age of vehicles far exceeds
long-term averages across the U.S.

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and the European markets.

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And actually, China is just making cars
more affordable again.

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So we think that the overall vehicle
demand number will likely surprise market

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estimates.

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And if you combine that with the very
tight supply coming out of the PGM

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markets,

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we think that these deficits could
materialize over the next two to three

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years at least.

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So it's almost the perfect storm for PGMs,
if you're a bull, that is.

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And obviously, things change.

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But it seems to me that this could be...

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Quite a long-term cycle we're going into
to the upside.

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Let's move now to the yellow metal.

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I look at the yellow metal and I think,
right,

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you've got the really big demand and the
really big solid holders came from the

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central banks.

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And then that pushed the price up.

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And then that got people excited.

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And people got excited and started buying.

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And ETFs were created.

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And it went on from there.

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It's obviously had a pullback, which we'll
talk about.

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But is gold still in the bull market and
why, please, Mohamed?

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Yeah, I think you've sort of captured the
broad sort of reasons behind the rally.

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And it's been quite incredible over the
past two years.

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And, you know, the 50% rally year to date
has been quite staggering.

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And so, I mean, the way I think about it,
there'd probably be two broad themes that

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are driving this.

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And within those, obviously, there's a lot
of subcomponents.

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But the first one just being the mix of
monetary policy.

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easing conditions that are manifesting and
are likely to continue as the Federal

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Reserve and other central banks cut

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interest rates.

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And secondly, this fiat currency
debasement theory,

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which is certainly driving central bank
and more recently investment demand as a

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portfolio hedge.

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And so, you know, just starting with, you
know, 2022, when Russian central bank

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assets were frozen,

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there was a market shift.

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in central bank purchases of gold coming
from emerging markets, especially China.

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And so, you know, in 2024, about 5,000
tons of gold was consumed,

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with central banks accounting for about
25% of that, so over 1,000 tons, for the

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third straight year in a row.

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And this year, again, we're running
slightly below that sort of level that we

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were last year,

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but still well above the 2010 to 2021
average.

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And more recently, there's been a surge in
investment demand from institutions and

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retail investors.

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I think the gold ETF saw $26 billion
inflow in the third quarter of this year,

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which is a record.

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And September alone was the single largest
month ever in terms of ETF inflows.

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And so, you know, talking to why people
would be now waking up to gold and still

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seeing value in this

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is that The central banks are cutting
interest rates, which lowers the

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opportunity cost of owning the metal.

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But I think the more sort of bigger theme
is this debasement theory,

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which suggests that overly indebted DM
countries don't have the political

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appetite to implement austerity measures

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required to reduce their debt.

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And so as you see widening fiscal
deficits, the only real option left for

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them is to inflate their way out of their
debt.

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And so they run nominal interest rates
below inflation.

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which transfers wealth from the savers,
i.e.

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your cash in your bank, to the debtors,
which is the government.

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And so as this happens, it reduces the
purchasing power of your cash, and

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therefore it's quite bullish for equities,

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but also especially for hard assets like
gold, like commodities and property,

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because it's the only real way to preserve
your purchasing power in this environment.

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Do you think that that last point, just as
we end this gold discussion,

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do you think the last point you made about
the indebtedness of nations and inflating

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their way out of it is a

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long term bullish factor for gold?

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Because it doesn't seem as though that
sort of policy can rid themselves of debt

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overnight.

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Yeah, I think so.

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I mean, it looks like for us, at least,
that we still remain in a structural long

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term bull market.

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but you know the recent pace of the rally
just got a bit aggressive and so the

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subsequent correction we've observed over

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the past week or 10 days or so indicates
that some of that momentum had got into

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extreme levels and there needed to be some

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healthy consolidation.

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Now normally for security in a strong
uptrend in markets you can get periods of

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short-term momentum pullback that usually

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last around two to four weeks and you get
prices pulling to the 50-day average.

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In this case it would be about $3,700 the
dollars per ounce.

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But we still believe that in this
pullback,

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you're likely to see a lot of people who
missed the first rally still allocate some

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of their portfolio holdings to gold.

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And actually, there's a recent survey by
one of the large Southside research

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houses, which poll fund managers,

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and it indicates that many of them still
have relatively low.

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allocations of gold in their portfolios
and are likely to increase their holdings

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going forward.

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And more likely, we believe that in the
past where you would allocate

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40% of a multi-asset portfolio to bonds,

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we think over time that allocation is
likely to reduce in favor of hard assets

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like gold and other commodities.

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Okay, let's move on from the yellow metal
to black gold, and that is the oil price,

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of course.

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Now, This is a classic commodity when it
comes to weighing up fundamentals versus

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geopolitics, Mohamed.

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And 2025 has really driven home that
point.

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Yeah, you know, the oil price is down 13%
year to date.

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And it's pretty rare for the oil market to
be such a consensus bearish view across

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almost every commodity

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research team and all the oil agencies
like the IEA, EIA.

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The only one with a slightly different
view, perhaps biasly so, is OPEC.

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But of course, they control a significant
share of the global supply and can

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massively influence

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the fundamental picture by withholding or
releasing that supply.

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And so if you look at the fundamentals,
global demand growth for this year and for

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next year is only around 700,000 barrels

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per day, which is almost half the sort of
long-term average demand growth over the

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past 20 years that we've witnessed.

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But even...

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In this low demand picture, we continue to
see massive waves of supply coming online,

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both from

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OPEC as they continue to restore
production, which they previously cut to,

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you know, sort of help the market over the
past two,

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three years, but also non-OPEC supply from
sources like Brazil, Guyana, etc.

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And so, you know, based on our
forecasting,

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we expect the market surplus exceeding 2
million barrels per day average next year.

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And if you get this kind of surplus.

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You know, you tend to get inventory bulls
in pricing hubs.

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And global inventory balances this year
have been increasing, especially over the

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past six months,

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indicating that our surpluses of about 2
million barrels per day are accurate.

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And so with this environment, you'd expect
to see oil below $60.

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But actually, you've seen, especially over
the last week, that as it got to that

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level,

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it promptly came back up above $65 per
barrel.

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And that, once again, has just highlighted
the geopolitical supply risk factor in the

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oil price that

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could be a wild card, which could
significantly alter market balances.

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And the latest news was the U.S.

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moving to sanction two of the largest
Russian oil companies.

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And therefore, you know, as these
companies are sanctioned, you've seen

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India and China saying that they will stop
taking delivery of Russian oil.

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And so they obviously have to then replace
these barrels from elsewhere.

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And so that big surplus that we spoke
about, the 2 million barrels,

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could easily be wiped away if Russian oil
is not allowed access into the market

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because they export over

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3 million barrels per day.

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It's very interesting as well that in the
last few days, one of those

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Russian oil companies has decided to sell
all of its international interests.

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So this is a story that will...

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continue.

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Yeah, let's now look at a commodity that
has suddenly started exciting people.

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And one of those people was a colleague of
yours in London.

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And he had some very interesting ideas
about where the copper price is going.

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Are you as excited as he is about it?

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00:13:30.895 --> 00:13:31.595
Yeah, definitely.

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I think as a house, we have quite a
positive outlook for copper.

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And we just have a belief that this
industrial metal

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will continue to play a critical role in
the energy transition in technologies such

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as electric vehicles which use three times

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the amount of copper that a normal vehicle
uses between even more so in other areas

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like the

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power grid investment that's required to
support

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the power hungry data centers that are
needed for artificial intelligence and

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other sort of electrification across many

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industries and so you know generally the
market is quite constructive copper on a

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long-term basis,

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but we had a view that copper deficits
might materialize earlier than markets

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expected because

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we believe that everyone was
underestimating the supply disruption from

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some of the major mines that

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are going on, such as the
Freeport-Grasberg mine in Indonesia.

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You've had Kamoa-Kakula in the DRC,
Anglotex, QB2 and Kualawasi mines also.

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lowering their guidance over the next year
or two.

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And so with this major supply disruption
risk against a market that continues to

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see strong demand,

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we had deficits beginning from next year.

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and actually above the top end of the
consensus deficit for next year.

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And so we were quite bullish that prices
would rise.

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Overall, the commodity complex, if you
look at it as an index, including all the

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ones we've just spoken about,

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would you say that you are still bullish?

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Again, I'm talking about commodities as a
whole, Mohamed.

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00:15:10.363 --> 00:15:13.738
Yeah, as I mentioned, I think in the world
that we found ourselves in,

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where countries are unsure in supply,

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Geopolitics could influence the production
of various commodities and

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the flow of metal.

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I think in that environment you're likely
to see stronger demand than what market

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00:15:33.924 --> 00:15:35.924
balances would suggest,

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and perhaps even somewhat inefficient
demand.

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00:15:37.323 --> 00:15:42.682
Normally it would go to the lowest cost
area, but now because of supply chain

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issues,

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00:15:44.682 --> 00:15:46.807
you could see excess capacity being built
and not fully utilized.

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And so if you add to that on the supply
picture,

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you really start to see across many
different commodities how adverse sort of

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00:15:58.321 --> 00:16:00.321
weather

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and natural disasters, etc., and even just
declining grades are impacting the supply

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coming out of mines.

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00:16:07.727 --> 00:16:08.133
And so if you compound those two views,

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plus this theory that real assets are
starting to benefit from debasement, then

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as a house I think

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00:16:17.102 --> 00:16:19.491
we are fairly constructive across most
commodities, especially, as I mentioned,

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precious metals and base metals like
copper, aluminium,

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but less so on the bulk metals or bulk
commodities like iron ore and thermal

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coal,

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where we believe there's just sort of
structural demand headwinds on that side.

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Mohamed, thank you very much for your
excellent analysis.

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That was Mohamed Dokret, analyst at 91.

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