🚗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
📝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
• 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
👍1
📌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
• 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
🚗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
⛏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
📝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
#statistics #China
📌Severstal has announced a 2% decrease in its domestic HRC price for June to RUB 63k/t (USD 993/t) (excl. tax)
• According to Metal Expert, this is in line with the price level announced by NLMK for June
• Due to rouble appreciation, the price level agreed with the Russian authorities rose above the export prices in USD terms, which has resulted in a domestic HRC price premium of USD 166/t
• This, coupled with weak demand, has forced steel producers to lower their prices, which might reduce the domestic premium to USD 146/t, other things being equal
#steel #rusteel
• According to Metal Expert, this is in line with the price level announced by NLMK for June
• Due to rouble appreciation, the price level agreed with the Russian authorities rose above the export prices in USD terms, which has resulted in a domestic HRC price premium of USD 166/t
• This, coupled with weak demand, has forced steel producers to lower their prices, which might reduce the domestic premium to USD 146/t, other things being equal
#steel #rusteel
📌China’s crude steel output decreased 5% YoY in April (vs. 6% YoY decline in March)
• This might have been caused by the weak demand amid continuing COVID-19 lockdowns in the country
• China’s apparent steel consumption was down 8% YoY in April (vs. the 6% YoY decline in March)
• Moreover, China’s property sales declined 39% YoY in April (vs. the 18% YoY decrease in March), which is negative for the demand for industrial metals: steel, aluminium, copper
#China #steel #aluminium #copper
• This might have been caused by the weak demand amid continuing COVID-19 lockdowns in the country
• China’s apparent steel consumption was down 8% YoY in April (vs. the 6% YoY decline in March)
• Moreover, China’s property sales declined 39% YoY in April (vs. the 18% YoY decrease in March), which is negative for the demand for industrial metals: steel, aluminium, copper
#China #steel #aluminium #copper
📌CISA mills’ daily crude steel output declined 2.3% in early May from the last ten days of April
• This represented a drop of 4.7% YoY (vs. the 1.7% YoY decrease in late April)
• In late April, steel output recovery was fuelled by expectations of renewed demand following easing in COVID-19 restrictions, which failed to meet expectations and only led to build-up of excess inventories
• CISA mills’ finished steel inventories increased 3.7% during the period (up 27.7% YoY)
#China #steel
• This represented a drop of 4.7% YoY (vs. the 1.7% YoY decrease in late April)
• In late April, steel output recovery was fuelled by expectations of renewed demand following easing in COVID-19 restrictions, which failed to meet expectations and only led to build-up of excess inventories
• CISA mills’ finished steel inventories increased 3.7% during the period (up 27.7% YoY)
#China #steel
📌Tula-Steel lowered Russian domestic rebar prices for May by 8% to RUB 46k/t (USD 719/t) (excl. tax)
• Due to rouble appreciation, the price level agreed with the Russian authorities rose above the export prices in dollar terms. Currently, the rebar-billet premium is still at USD 199/t
• This, combined with weak demand, has forced producers to lower their prices. At the price level proposed by Tula-Steel, the rebar-billet premium might drop to USD 145/t, other things being equal (vs. the historical average of a USD 20/t premium)
• We note that the billet spread to slab export prices is currently USD 0/t (in line with the historical average of USD 0/t)
#steel #rusteel
• Due to rouble appreciation, the price level agreed with the Russian authorities rose above the export prices in dollar terms. Currently, the rebar-billet premium is still at USD 199/t
• This, combined with weak demand, has forced producers to lower their prices. At the price level proposed by Tula-Steel, the rebar-billet premium might drop to USD 145/t, other things being equal (vs. the historical average of a USD 20/t premium)
• We note that the billet spread to slab export prices is currently USD 0/t (in line with the historical average of USD 0/t)
#steel #rusteel
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💎India’s rough diamond net imports fell 22% YoY in April due to sanctions imposed on Alrosa (30% of the global rough diamond market)
• The rate of decline reversed from the 40% YoY growth in March
• At the same time, India’s polished diamond net exports decreased 3% YoY in April (vs. 11% YoY increase in March)
• Meanwhile, the growth rate of India’s lab-grown rough diamond net imports decelerated to 24% YoY in April from 164% YoY in March. The share of lab-grown net rough imports in natural diamond imports dropped to 7.6% in April (from 10.4% in March)
📝India accounts for 90% of global polished capacity
#diamonds
• The rate of decline reversed from the 40% YoY growth in March
• At the same time, India’s polished diamond net exports decreased 3% YoY in April (vs. 11% YoY increase in March)
• Meanwhile, the growth rate of India’s lab-grown rough diamond net imports decelerated to 24% YoY in April from 164% YoY in March. The share of lab-grown net rough imports in natural diamond imports dropped to 7.6% in April (from 10.4% in March)
📝India accounts for 90% of global polished capacity
#diamonds
📌China’s aggregate financing contracted 51% YoY in April, reaching the lowest level since February 2020 and underperforming market expectations by 58%
• Traditional bank loans were down 56% YoY, underperforming Bloomberg consensus expectations by 57%
• The decline was mostly caused by COVID-19 lockdowns
❗️China’s falling aggregate financing might further weaken the country’s economic activity, which is negative for the industrial metals demand
#China #global
• Traditional bank loans were down 56% YoY, underperforming Bloomberg consensus expectations by 57%
• The decline was mostly caused by COVID-19 lockdowns
❗️China’s falling aggregate financing might further weaken the country’s economic activity, which is negative for the industrial metals demand
#China #global
⛏Iron ore - weakening perspective
📉At the end of April, China’s steel output had almost recovered to 2021 levels due to strengthening demand expectations after lockdown. However, expectations have been let down, which has translated into a build-up of inventories and a pullback in the output run-rate. Moreover, China’s intention to keep the 2022 steel output below the 2021 level is forcing steel producers to lower their output run-rate by further a 9%+ for Jun-Dec, indicating that a further dip in iron ore demand is still ahead. We note the risk of an even deeper decline amid continuously weakening property sales
❗️In January-April, iron ore prices recovered (up >20% from the beginning of 2022), but started to correct in May, declining 11% WoW. We see more downside than upside for iron ore prices in the coming months
📝However, we note main iron ore producers’ value over volume strategy, which creates a risk that supply discipline might keep prices at elevated levels
#iron_ore
📉At the end of April, China’s steel output had almost recovered to 2021 levels due to strengthening demand expectations after lockdown. However, expectations have been let down, which has translated into a build-up of inventories and a pullback in the output run-rate. Moreover, China’s intention to keep the 2022 steel output below the 2021 level is forcing steel producers to lower their output run-rate by further a 9%+ for Jun-Dec, indicating that a further dip in iron ore demand is still ahead. We note the risk of an even deeper decline amid continuously weakening property sales
❗️In January-April, iron ore prices recovered (up >20% from the beginning of 2022), but started to correct in May, declining 11% WoW. We see more downside than upside for iron ore prices in the coming months
📝However, we note main iron ore producers’ value over volume strategy, which creates a risk that supply discipline might keep prices at elevated levels
#iron_ore
💰Iron ore producers: valuation update
⛏As we noted previously, there are four large iron ore producers in the world (65% of the seaborne supply): RIO LN, BHP AU, VALE US, FMG AU
💰On updated valuation, RIO and FMG look most demanding: the companies trade at 3.8-4.4x 1-y fwd EV/EBITDA on spot, which is above VALE and BHP multiples. Both companies offer 13-14% FCF yield and 9-13% dividend and buyback yield. As we see more downside for iron ore prices than upside, we find these companies expensive at current multiples
💰VALE and BHP trade at 2.7x and 3.1x EV/EBITDA, respectively, offering 16-20% FCF yield and 13-18% dividend and buyback yield
#iron_ore
⛏As we noted previously, there are four large iron ore producers in the world (65% of the seaborne supply): RIO LN, BHP AU, VALE US, FMG AU
💰On updated valuation, RIO and FMG look most demanding: the companies trade at 3.8-4.4x 1-y fwd EV/EBITDA on spot, which is above VALE and BHP multiples. Both companies offer 13-14% FCF yield and 9-13% dividend and buyback yield. As we see more downside for iron ore prices than upside, we find these companies expensive at current multiples
💰VALE and BHP trade at 2.7x and 3.1x EV/EBITDA, respectively, offering 16-20% FCF yield and 13-18% dividend and buyback yield
#iron_ore
📉What happens if iron ore prices drop to USD 100/t due to weak demand?
💰If iron ore prices decline to USD 100/t due to weak demand (https://news.1rj.ru/str/metalswire/198), most producers will look expensive. The most unattractive stock in this situation would be RIO: the company trades at a 1-y fwd EV/EBITDA of 7.7x on these assumptions and generates a 4% FCF yield
💰Other producers look slightly better at these prices, but remain expensive, trading at 3.5-4.9x EV/EBITDA
💰VALE would the best-looking stock in our scenario, as the company trades at 3.5x EV/EBITDA and generates a 13% FCF yield in this scenario
#iron_ore
💰If iron ore prices decline to USD 100/t due to weak demand (https://news.1rj.ru/str/metalswire/198), most producers will look expensive. The most unattractive stock in this situation would be RIO: the company trades at a 1-y fwd EV/EBITDA of 7.7x on these assumptions and generates a 4% FCF yield
💰Other producers look slightly better at these prices, but remain expensive, trading at 3.5-4.9x EV/EBITDA
💰VALE would the best-looking stock in our scenario, as the company trades at 3.5x EV/EBITDA and generates a 13% FCF yield in this scenario
#iron_ore