🗞Today China published preliminary import/export statistics for April. See preliminary data in the table above

#statistics #China

🗞China’s finished steel net exports declined 41% YoY in April, according to China Customs

• The decline rate accelerated from 35% YoY in March

• Steel imports were down 19% YoY, while steel exports fell 38% YoY in April

❗️We note that China plans to cut its steel output in 2022 relative to 2021, which might negatively affect the country’s steel net exports

#steel #statistics #China

📌CISA mills’ daily crude steel output increased 5.5% in the last ten days of April, compared with the second ten days of the month

• This was 1.7% YoY lower (vs. the 3.8% YoY decline in the middle of April) and only 2% below last year’s maximum

• According to Metal Expert, market participants expected a recovery in steel demand amid the anticipated easing of COVID-19 restrictions in May, which led to an increase in steel production. However, the restrictions were tightened instead, which might negatively affect steel output in early May, we believe

• Meanwhile, CISA mills’ finished steel inventories declined 8.0% during the period (up 34.9% YoY), which might imply stronger steel demand in late April

#China #steel

📌Peru’s copper output declined 0.5% YoY in March, reversing from the 0.4% YoY increase in February

❗️We note that Peru’s copper production continues to be affected by protests at the Las Bambas copper mine (1.7% of global copper supply)

📝Peru accounts for some 11% of global mine copper supply

#copper

💍According to MasterCard SpendingPulse, preliminary US jewellery sales increased 33% YoY in April

• The growth rate accelerated from 9% YoY in March

• According to MasterCard, jewellery sales were supported by the return to in-store shopping and by consumers refreshing their wardrobe for summer travel

❗️We note, however, that jewellery sales might be negatively affected over the coming months by rising inflation

#diamonds

📌Gold-backed ETFs increased their holdings through April, with net inflows at 33t

• The net inflows declined from 185t in March

• We note that ETF holdings have been significantly increasing for four consecutive months for the first time since 2020

• We believe that gold investment demand is being supported by geopolitical risks and rising inflation

❗️Potentially positive for gold prices

#ETF #gold

📌Turkey’s finished steel production decreased 2.9% YoY in March, with the rate of decline slightly decelerating from 3.3% YoY in February

• According to TCUD, the decrease in production was caused by supply chain disruptions and the energy crisis

• The country’s steel consumption fell 16.8% YoY in March (vs. the 1.9% YoY increase in February). According to Steel Orbis, the decline in steel consumption was partially driven by weak construction demand

• The significant drop in Turkey’s steel consumption led to a 20.7% YoY decrease in steel imports, while steel exports rose 7.2% YoY in April

#steel #Turkey

🚙China’s new EV sales rose 45% YoY in April, with the growth rate decelerating from 114% YoY in March

· The growth rate slowed down due to COVID-19 lockdowns

· In April, the share of EVs in China’s total car sales increased to 25% from 22% in March

❗️Growing new EV sales in China are supportive for the demand for battery metals: nickel, lithium and cobalt

📝In 2021, China accounted for 49% of global EV sales (passenger cars and light-duty vehicles)

#EV #nickel #lithium #cobalt

🛻US light vehicle sales decreased 19% YoY in April (vs. the 21% YoY fall in March)

• At the same time, the seasonally adjusted annual rate sales fell 23% YoY in April (vs. 25% YoY in March)

• The decrease was caused by the global automotive parts shortage

📝North America accounts for some 20% and 11% of global autocatalyst palladium and platinum demand, respectively

❗️Falling car sales might push the palladium and platinum markets to balance or surplus in 2022, which might negatively affect prices

#cars

🚘Preliminary data suggest a 22% YoY decline in new car registrations in France, the UK, Spain, Italy and Germany in April

• In France and Germany, car sales decreased 23% YoY and 22% YoY, respectively

• Italy car sales fell 33% YoY, while Spain vehicle registrations were down 12% YoY

• The UK vehicle sales declined 16% YoY

❗️Given these 5 countries accounted for 70% of total new vehicle sales in Europe in 2021, this implies a significant YoY decrease in EU and UK new car registrations in April

📝The full results for April registrations are to be published on 18 May

❗️Meanwhile, according to Handelsblatt, EU considers a proposal to register only electric vehicles starting from 2035. This might be negative for long-term demand for PGMs
 
#cars

🚗💨China’s new internal combustion engine (ICE) car sales were down 57% YoY in April (vs. the 24% YoY decline in March)

· As previously, the decline was caused by the semiconductor shortage, COVID-19 lockdowns and the substitution of ICE cars with EVs

❗️Negative for palladium and platinum demand

📝China’s automotive sector accounts for some 31% of global autocatalyst palladium demand

#cars

❓What do you know about PGMs?

🧪Platinum Group Metals (PGMs) integrate six noble, precious metallic elements with similar physical and chemical properties: ruthenium (Ru), rhodium (Rh), palladium (Pd), osmium (Os), iridium (Ir), and platinum (Pt). Pd and Pt are the most used metals

⛏Mining and processing PGMs is almost the same as for gold: ore with PGM content is collected from the ground and then refined to a near-pure form; however, PGMs are mainly extracted from underground mines. These metals tend to occur together in the same mineral deposits

📝Producers distinguish three main types of PGM product baskets: 2E PGM, 4E PGM and 6E PGM. 2E PGM includes Pt (23%) and Pd (77%), and is typical in the Northern Hemisphere. 4E PGM is a set of Pt (57%), Pd (33%), Rh and gold. This type is common in South Africa. 6E type comprise Rh (5-10%), Ru, Os in addition to Pd (ca.40%), Pt (ca. 40%) and gold

#PGMs

🔗Where do PGMs come from?

📝Global annual PGMs supply was 10.5mnoz for Pd and 8.2mnoz for Pt. There are 2 major sources of PGMs supply: mines (с.70% of total for Pd and Pt combined) and recycling (c.30%) 

🌍PGMs mine supply is geographically consolidated. South Africa and Russia account for 84% of platinum and 79% of palladium mine supply. The rest of mine supply comes from North America, Zimbabwe and other mining jurisdictions, with a minor contribution

#PGMs

❓What is the composition of PGMs demand?

🚗Palladium and platinum are essential catalysts in the conversion of carbon monoxide and unburned hydrocarbons, as well as the reduction of NOx, from automobile exhaust fumes (we will get back to the catalyst scheme in the next post). That is why most demand for PGMs is from autocatalyst production (some 1/3 of Pt total demand and as much as 85% of Pd demand). Pt catalysts are mostly used for diesel cars; Pd is used for petrol/gasoline
 
📝While catalytic converters for automobiles take almost all of Pd demand, platinum jewellery and chemical demand takes also meaningful part of c.1/3 of total platinum and palladium. Investment demand for Pt – non-physical demand in the form of commodity ETFs – accounts for some 14% of total 
 
📝Other disparate sectors (electrical, petroleum, glass, medical etc.) account for <15% of Pd and some 20% of Pt demand

#PGMs

🚗How do PGMs work in catalytic converters?

📝A catalytic converter is a device that reduces the level of the most harmful products in car exhaust fumes – carbon monoxide (CO), hydrocarbons (HC) and oxides of nitrogen (NOx), converting them to CO2, N2 and water vapor. Pd, Pt and Rh are used as catalysts in >98% of new cars sold with catalytic converters. They are coated onto a honeycomb substrate housed in the exhaust system 

📝In terms of specific metals, Pd and Pt can greatly improve oxidation (converting CO and HC to CO2 and H2O), while a minor quantity of Rh, combined with Pd or Pt, is an important catalyst for reducing NOx content. Pt is widely used in diesel autocatalysts, Pd in petrol. One catalytic converter typically requires 2-7g of Pd or Pt, depending on its size and type of vehicle

🚗PGM catalysts have proved to be highly efficient; just one car sold in the 1960s would have produced as many harmful exhaust emissions as one hundred of today's automobiles equipped with catalytic converters

#PGMs

📌China’s jewellery and watch retail sales contracted 20% YoY in March, reversing from the 20% YoY growth in 2mo22

• The decline was mainly caused by COVID-19 lockdowns

❗️We note that China’s April jewellery sales were likely to be affected by the lockdowns as well

#diamonds

📌South Africa’s PGM mining production declined 8% YoY in March, while the country’s gold output decreased 26% YoY

• The decline in South Africa’s gold and PGM output might have been caused by strikes at Sibanye-Stillwater's operations, supply chain disruptions and labour shortages

❗️Potentially positive for gold and PGM prices

📝 South Africa accounts for approximately 70% and 34% of platinum and palladium supply, respectively, and for 3% of global gold production

#PGMs #gold

📌What’s happening on the PGM market?

🚗The demand for PGMs remains weak, as consumption from autocatalysts is under pressure from the chip shortage, COVID-19 and geopolitics. In the US and the EU, total car sales decreased by some 20% YoY in April, while in China, ICE car sales dropped 57% YoY. If car sales continue to decline at these rates, the Pd and Pt markets might be in surplus of 15% and 30% of demand, respectively

⛏PGM production, meanwhile, also remains weak: South Africa’s PGM output fell 17% YoY in February, partially due to the rebuild of Impala’s furnace. Russia’s PGM output also declined 7% YoY in February. This slightly supports PGM prices in the short term. Moreover, prices might be slightly lifted by potential investment demand amid geopolitical concerns

#PGM

💡Sylvania Platinum – a play on PGMs you probably never thought of

⛏Sylvania (SLP LN) is a small cap producer of PGMs in South Africa. The company produces about 70koz/a of 4EPGM, with Pt and Pd accounting for 65% and 23%, respectively (vs. Sibanye ‘s production in South Africa of 1.7mnoz)

📈One of SLP’s main advantages is that the company processes stockpiles and has lower cash costs due to the absence of expensive mining. SLP’s cash cost per oz is lower than those of large PGM producers, including Amplats, Sibanye and Implats. The company also looks attractive because it returns cash to shareholders: SLP announced that it intends to conduct a share buyback to purchase up to a USD 8.5mn (3% yield)

💰At spot prices, SLP trades at 0.7x 1-y fwd EV/EBITDA (below its peers) and generates a 31% FCF yield. The announced buyback and dividends bring SLP’s dividend yield to 10%

#PGMs

📌PGM miners: to buy or not to buy

📝Given South Africa is one of the main PGM suppliers, the largest public PGM miners, Sibanye (SBSW US), Implats (IMP SJ) and Amplats (AMS SJ), are based there. Besides SA, SBSW produces PGMs in the US, while AMS and IMP also produce in Canada and Zimbabwe. SBSW also has gold mines in SA, which is now on strike

📈As we noted earlier, the demand for PGMs is declining, which might lead to the market surplus and lower prices. Given this situation, PGM producers look expensive at current multiples, so we note further downside risk for stocks

💰However, the one interesting option to get an exposure to PGM remains SBSW as it trades at 1.6x 1-y fwd EV/EBITDA,which is slightly below historical average (~2x) and significantly below its peers (IMP-2.2x,AMS -5.1x). Moreover, the company generates a 29% FCF yield and is diversifying its business by investing in green industry metals such nickel and lithium. In 2025, these segments might account for 10% of the company’s revenue

#PGMs

🗞Today, China published its industrial production data for April. See the table above

#statistics #China