📌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

💰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

📉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

🚘EU + UK passenger car registrations fell 20% YoY in April, with the rate of decline slightly accelerating from 19% YoY in March

· This rate of decline was slightly below the preliminary estimate (22% YoY drop) we published earlier

· As we previously noted, the decrease was caused by the continuing automotive parts shortage

❗️Negative for PGM demand

📌The FAS is considering setting up a metals exchange trading in Russia

· The FAS is also considering a minimum production volume that would have to be realised via an exchange

· According to the FAS, the main goal of these measures would to stabilise the domestic prices of metal products and raw materials

#Russia #global

📌Johnson Matthey sees palladium and rhodium market deficit and platinum market surplus in 2022

· JM did not provide exact estimates due to the high degree of uncertainty

· JM forecasts a 5% YoY increase in automotive PGM consumption in 2022, on its expectations of a recovery in passenger car sales vs. 2021. Moreover, JM forecasts an increase Pt share in automotive PGM demand given increased use in diesel truck catalytic converters as well as further substitution of Pd: JM expects 66% YoY increase in Pt usage in petrol cars (share of Pt in converter to rise from 8% to 12%).

❗️However, contrary to JM forecasts, there are currently no signs of automotive PGM demand recovery. Previously, we noted that if car sales continued to decline at April’s rates, the Pt and Pd markets might be in surplus

· Meanwhile, JM sees risks to PGM supply due to possible restrictions on Russia’s exports and major furnace overhauls in South Africa

#PGMs

💎De Beers has reported sales of USD 604mn at its 4th cycle in 2022
 
· This was 16% above the historical average and 57% YoY higher
 
· According to Bruce Cleaver, the CEO of De Beers, rough diamond demand during the 4th cycle remained strong, being supported by growing US jewellery sales. However, he noted that rough diamond demand in the coming cycle might be negatively affected by seasonal closure of Indian polishing factories for traditional holidays
 
❗️We also note risks to rough diamond demand due to COVID-19 lockdowns in China and rising inflation

#diamonds

💎Indian polishers cut production due to missing rough diamond supplies from Alrosa

· IDEX Online has reported that some Indian manufacturers are working short weeks or even closing their factories

· As we wrote earlier, the lack of rough diamonds in the market has led to the 22% YoY decrease in India’s rough diamond net imports in April

· IDEX Online also noted that the shortage of rough diamonds might soon become even more pronounced as the approaching summer wedding season might further fuel the demand for jewellery

❗️Supportive for rough diamond prices as we noted earlier

📝India accounts for 90% of global polished capacity, while 30% of rough diamonds are produced by Alrosa

#diamonds

💡What is Cu?
 
📝Copper (Cu) is a soft, malleable and ductile metal with high thermal and electrical conductivity
 
📝The last two qualities of Cu determine its main industrial usage – as a wire. Therefore, copper used in all industrial goods that require electricity conductors. Copper is thus an essential metal for grid infrastructure, refrigerators, air conditioners and other housing equipment. Moreover, all vehicle wiring is also made of copper

#copper

⛏Copper mine production market

📌The copper mining process is similar to that of other metals: copper-containing ore is extracted from open pits or underground mines. After extraction, ore (~1% Cu) is processed by one of two main methods: pyrometallurgical (for sulphide ores) and hydrometallurgical – SX/EW – (for oxide ores). The final product of SX/EW is copper cathode (99.99% Cu). Copper concentrate (25-35% Cu), obtained using the pyrometallurgical method, must be smelted to reach 99% Cu. Given the pyrometallurgical process accounts for roughly 75% of world output, it creates, besides the mined copper market, a refined copper market (see details later)

🇨🇱🇵🇪Chile and Peru are the main producers of mined copper, at 27% and 11% of global mine supply, respectively. While we expect mined copper supply to grow 4% CAGR in 2021-2025, we note downside risks associated with the actions of the local authorities, such as nationalisation of copper mines in Chile and the mine tax increase in Peru

#copper

What is happening on the refined copper market?

📝China, the major consumer of industrial metals, accounts for 54% of global Cu demand. 43% of refined Cu is produced in China. Refined Cu is obtained from Cu concentrate that is shipped to China, mainly from Chile and Peru (27% and 11% of world mined Cu output, respectively)

📈In 2021, refined Cu supply was 24mnt, rising 9% over the previous 5 years, as a 32% increase in China’s refined Cu output offset the rest of the world’s decline. Global refined supply might further rise 16% by 2026 (3% 2021-26 CAGR) on the back of growing China’s refining capacities

💵For producing refined Cu from concentrate, refineries charge TC/RCs – treatment and refining charges. The dynamics of TC/RCs signals changes in the concentrate market balance. In April, the average spot TC/RCs were USD 83/t, up 17% MoM, which might imply a move toward a concentrate surplus, caused by lower availability of refining capacity amid COVID-19 lockdowns in China and rising costs

#copper

🏢China property completions decreased 14% YoY April

• The rate of decline was roughly in line with the 15% YoY drop in March

• Property completions are dropping on the back of China’s real estate crisis, which has been exasperated by COVID-19 lockdowns despite the strong floor space starts in recent years

• Meanwhile, China’s floor space starts were down 44% YoY in April (vs. 22% YoY decline in March)

❗️Weak property starts and completions are negative for the demand for industrial metals. However, we note that Chinese banks cut the five-year loan prime rate (a reference for home mortgages) to 4.45% from 4.6%, which might support the property market in the coming months

#China #steel #aluminium #copper