📌China’s domestic excavator sales contracted 64% YoY in March, with the rate of decline accelerating from 31% YoY in February
 
• Meanwhile, the country's total excavator sales (domestic + export) were down 53% YoY in March

• Falling excavator sales indicate weak construction activity, which was further hit by China’s COVID-19 lockdowns
 
❗️Negative for industrial metals demand
 
❗️We note, however, that in the short term, China’s construction activity might be supported by the monetary policy easing announced by PBoC
 
#China #steel #aluminium #copper

📌China plans to keep 2022 crude steel output below the 2021 level

· However, the exact target was not specified by China’s National Development and Reform Commission (NDRC)

· In 2021, the NDRC planned to cut domestic crude steel output relative to the 2020 level. As a result, China’s crude steel production declined 3% YoY to 1,033mnt in 2021

· Meanwhile, in 1Q22, the country’s crude steel output fell 11% YoY

📈 Positive for seaborne steel margins given China accounts for 53% of global crude steel supply

#China #steel

📌Russia’s coal exports fell 9% YoY in the period January to mid-April 2022, according to Russia’s Ministry of Energy

· Moreover, in the period late March to mid-April, coal exports declined more than 20%, according to the ministry
 
📈Potentially supportive for coal prices, as Russia accounts for some 16% global coal exports

#coal

📌EU + UK passenger car registrations fell 19% YoY in March

· Moreover, in 1Q22, the passenger car registrations were down 11% YoY

· The decrease was caused by the continuing automotive parts shortage

❗️Negative for PGM demand

#cars

💎Petra Diamonds 1Q22 results

📈Petra Diamonds (PDL LN) reported strong 1Q22 results, with average realised prices increasing 30% QoQ and 93% YoY. According to the company, the LFL price was up 38% at the 4th Tender (in March) than the preceding December 2021 tender. However, the company noted the risk of softening in prices next quarter amid the effect of geopolitical tensions on global economy
 
⛏Petra’s diamond output increased 18% YoY in 1Q22. Moreover, the company confirmed its production, cost and capex guidance 
 
💰Petra’s net debt decreased USD 45mn (15% FCF yield in 1Q22 only). PDL now trades at 0.9x 1-y fwd EV/EBITDA at spot price, generating about 65% 1-y fwd FCF yield

#diamonds $PDL

📌Will the aluminium price stay elevated?

• In our previous post, we noted that the aluminium cash cost mostly depended on the cost of energy. As coal prices might remain elevated, or even go higher, the cash cost of aluminium producers using thermal coal power generation might further increase in the coming months
 
• However, the fundamentals are not so strong: we expect the aluminium market to be in a small surplus of 2-3% in the near future. The demand from China could decelerate amid the weak consumption of the property market (which contracted 10-50% in 1Q22). Moreover, we also note the downside risk to ex-China aluminium demand amid the economic slowdown and weak demand from the automotive sector. As such, the only supportive factor for the price increase remains the cost of energy
 
❗️Thus, we see the most attractive aluminium producers as being those that use hydro power or get energy from own coalmines. We will get into those details shortly

#aluminium

📈How to play elevated aluminium prices
 
•Given one of the main drivers for aluminium cash cost growth remains high energy prices, we see producers who work mostly with their own sources of energy or at fixed price – Rusal, Chalco, Norsk Hydro – as most attractive. South32 also looks interesting, as it owns several coking coal mines and can benefit from strong coal prices

💰RUAL looks good, trading at 1.3x 1-y fwd EV/EBITDA and a 50% 1-y fwd FCF yield. Furthermore, its primary source of energy is hydro at fixed contract prices. However, we note geopolitical risks

💰Chalco covers some 51% of its own energy consumption from captive coal mines. We find the stock interesting as it trades at 3.2x EV/EBITDA (vs. 4.5x EV/EBITDA of Norsk Hydro) and offers a 38% FCF yield
 
💰S32, meanwhile, trades at 2x EV/EBITDA and generates a 20% FCF yield, supported not only by elevated aluminium prices, but strong coking coal prices. This makes the stock attractive

#aluminium $RUAL $Chalco $S32

📌China has released another tranche of industrial data (see table above)

· According to Platts, China’s apparent steel consumption declined 3.8% YoY in March, which was mainly caused by weak steel demand from the real estate sector. In April, construction activity might be further negatively affected by COVID-19 lockdowns

❗️Given the real estate market accounts for 30% of China’s steel demand, this might pressure the country’s steel consumption in the short term

· China’s authorities have approved an additional 300mnt/a of coal mining capacity this year, according to Bloomberg. Previously, in 2021, China increased its coal production capacity by 300mnt/a in total

❗️Potentially negative for coal prices, given the increase accounts for 7% of China’s coal production

#China #steel #coal

☢️How does a nuclear power plant work?
 
📝Nuclear power plant (NPP) technology has changed little since the 1960s, and works on principles similar to thermal power stations. Energy, generated in the heart of reactor, heats a coolant, which then goes to a steam generator, where it heats water to produce steam, which rotates a turbine to generate electricity

📝The difference to other thermal plants is, of course, the source of energy. In NPPs, the energy is generated via nuclear fission, which splits atoms into smaller nuclei, which in turn split more atoms. As a result of the reaction, several new nuclei appear – plutonium, actinides and uranium isotopes (incl. U233) – and the chain reaction releases great amounts of energy

📝NPP use uranium in the form of fuel pills. In nuclear fuel, the concentration of the U235 nuclear isotope reaches 2-3% (vs. 0.7% in mined uranium)

📝Some products of the reaction - plutonium oxides and uranium U233 - can be reprocessed into REPU and MOX fuel and used in NPPs again

☢️UK nuclear plans – will it all be completed on time?
 
📌Recently, the UK announced plans to build 8 new NPPs by 2030
 
📝Though NPP technology has remained broadly unchanged for >60 years, safety protocols mean the construction process takes several years; costs reach USD 8-10bn for the average-sized reactor. Several more years are needed for the receipt of the necessary environmental and government approvals

• Earlier in 2010, the UK announced the start of a new large reactor, Hinkley Point C, with a combined generation capacity of 3.26GW. The initial target was to start operations in the early 2020s. However, construction has been postponed several times and now it is expected to start operations only in 2026. Capex is now slated for GBP 22-23Bn (>10% above initial estimates). The construction of several other announced projects have not even commenced

❗️Therefore, it is entirely possible that the new British plans prove overly optimistic: costs could well be higher and timelines pushed outward

☢️Uranium market – balance to be restored in the mid-cycle
 
📌Uranium price growth (c. 51% YTD 2022) has mainly been caused by concerns about the security of supply. Another supporting factor has been the decision of some European countries to postpone their plans to phase out nuclear electricity or even build new capacity

⛏On the supply side, Cameco plans to ramp up uranium production to 10.9 Ukt by 2024 (33% CAGR from 2021), with the increase accounting for some 12% of uranium mined supply. Moreover, Namibian uranium production might increase roughly 2.7 Ukt (5% of mine supply) in 2024
 
❗️Thus, the potential growth of uranium production, and the high inventories held by funds, might restore uranium market balance in the medium term. To recap, in 2021, two major physical uranium holding funds - Sprott and Yellow Cake – purchased some 18Ukt (~30% of global uranium annual demand)

❗️As such, uranium prices might stabilise at a relatively high level of USD c.55/lb amid cost inflation in the medium term

☢️Uranium sector – which companies are interesting?
 
• Since the start of 2022, uranium prices have surged >50%, widely supported by concerns over supply security. This has translated into a 10-91% increase in global uranium miner share prices

• However, most of these miners have either small-scale operations or no uranium mining at all. All they have are legacy mines with suspended production, which require additional investment to restart operations

❗️We note that the uranium market has been speculatively heated since 2021 due to purchases by physical uranium funds and the suspension of operations at Cameco’s Cigar Lake mine (c.13% of global output). However, as we expect market balance to be restored in the medium term, we do not see much value behind all these artificially pumped stories

❗️Kazatomprom, which has not responded to this uranium price hike so far, is the only name that we believe is worth looking at

💎De Beers has reported a 25% YoY increase to 8.9mnct in rough diamond production in 1Q22

• According to the company, the growth reflected the planned higher output levels amid continued strong demand for rough diamonds

• Rough diamond sales from 2 cycles in 1Q22 totalled 7mnct, vs. 13mnct from 3 cycles in 1Q21. 1Q22 sales were down 3% relative to the 2019 level and 3% lower QoQ

• The company noted risks to 2Q22 rough diamond demand due to the seasonal effect, geopolitics and COVID-19 lockdowns in China

• De Beers left its FY22 guidance unchanged at 30-33mnct

$AAL #diamonds

💍LVMH has reported a 19% YoY increase in the organic sales of watches and jewellery in 1Q22

• The growth rate slightly decelerated from the 21% YoY in 4Q21

• According to the company, the sales growth was mainly driven by robust Tiffany & Co performance in the US

❗️However, we note risks to jewellery demand in the short term amid weakening consumer sentiment, growing inflation and COVID-19 restrictive measures in China

#diamonds

🧲What are Rare Earth metals, exactly?
 
🧪Rare earth elements (REE) are a batch of 17 metallic elements:15 lanthanides plus scandium and yttrium.As these metals have many similar properties, they are often found together in deposits. Many REEs are typically sold as oxide compounds; as such, they are sometimes called rare earth oxides (REO). REE are not so rare, but they are difficult to mine because it is unusual to find them in concentrations high enough for economical extraction
 
❗️REE are the main components of permanent magnets and catalysts (more than 50% of global demand by volume). The primary ingredient in the most efficient and highest strength permanent magnets is Neodymium-Praseodymium (NdPr) oxide. Given permanent magnets are used in EVs (REE based permanent magnets are used in more than 90% of new EVs) and wind turbines, the structural shift to the green economy is a significant driver for REE demand. NdPr magnets are also critical for the tech used in drones, mobile devices, etc.
 
#rare_earth

Norilsk Nickel announces FY21 dividends with a 6% yield

📌On Friday, the Nornickel BoD recommended FY21 dividends of RUB 1,166.2/sh. The record date is 14 June; the AGM is to consider this recommendation on 3 June 2022

• On our numbers, this dividend offers a c.6% yield and implies a <50% EBITDA payout, which is below the company’s policy (of paying 60% EBITDA). Had the company matched policy, the implied FY21 DY would have been 7%

❗️Nornickel was the first name in the Russian M&M space since March to announce its intention to pay dividends for 2021, which might be a positive trigger for the stock

📌Global crude steel output declined 6% YoY to 161mnt in March

• The decrease was partially driven by the 6% YoY decline if steel output in China, which accounted for 55% of world steel production in March (vs. 53% in February)

• Ex-China steel production fell 5% YoY in March (after being roughly flat YoY in February)

• US steel production decreased 2% YoY in March (vs. 1% YoY growth in February), while EU crude steel output was down 9% YoY in March (vs. 3% YoY decline in February)

#steel