Morning Bites (part 1)
🔗The Russian Steel Association anticipates a 20-50% YoY decrease in Russia’s steel production in June. However, in our view, this estimate is overly downbeat. Previously, we noted that Russian steelmakers’ sales had fallen 11% YoY in May, mostly on the back of the 41% YoY decrease in finished product exports, while domestic shipments were down 8% YoY in the same month. The full production data is to be released at the end of this month
📉Gold-backed ETFs continued to reduce their holdings through June, with net outflows at 32t (after 51t of outflows in May). According to the World Gold Council, the outflows were triggered by the anticipated future interest rate hikes in the US and Europe. We note, however, that surging inflation might support the demand for gold investment in the coming months
#steel #ETF #gold
🔗The Russian Steel Association anticipates a 20-50% YoY decrease in Russia’s steel production in June. However, in our view, this estimate is overly downbeat. Previously, we noted that Russian steelmakers’ sales had fallen 11% YoY in May, mostly on the back of the 41% YoY decrease in finished product exports, while domestic shipments were down 8% YoY in the same month. The full production data is to be released at the end of this month
📉Gold-backed ETFs continued to reduce their holdings through June, with net outflows at 32t (after 51t of outflows in May). According to the World Gold Council, the outflows were triggered by the anticipated future interest rate hikes in the US and Europe. We note, however, that surging inflation might support the demand for gold investment in the coming months
#steel #ETF #gold
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Morning Bites (part 2)
💍US jewellery and watch sales were up 10.5% YoY in May, according to data from the US Department of Commerce. The growth rate decelerated from the revised 16.2% YoY increase in April. We note that even though the growth rate remained quite strong in May, there is a downside risk to downstream diamond demand, due to rising inflation and concerns over a recession
#diamonds
💍US jewellery and watch sales were up 10.5% YoY in May, according to data from the US Department of Commerce. The growth rate decelerated from the revised 16.2% YoY increase in April. We note that even though the growth rate remained quite strong in May, there is a downside risk to downstream diamond demand, due to rising inflation and concerns over a recession
#diamonds
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Morning Bites
💍According to MasterCard SpendingPulse, preliminary US jewellery sales rose 16% YoY in June. In May, MasterCard reported a 22% YoY increase in US jewellery sales, above the official growth rate of 11% YoY. According to MasterCard, in June, jewellery sales were supported by people travelling more actively than in the same month last year
💎The growth rate of Hong Kong jewellery & watch sales decelerated to 6% YoY in May, from 13% YoY in April. The HK government stated that it expected the recovery in retail sales to continue as the COVID situation remained under control. As before, we note that inflationary pressures and recession concerns might be negative factors affecting the global downstream demand for diamonds
#diamonds
💍According to MasterCard SpendingPulse, preliminary US jewellery sales rose 16% YoY in June. In May, MasterCard reported a 22% YoY increase in US jewellery sales, above the official growth rate of 11% YoY. According to MasterCard, in June, jewellery sales were supported by people travelling more actively than in the same month last year
💎The growth rate of Hong Kong jewellery & watch sales decelerated to 6% YoY in May, from 13% YoY in April. The HK government stated that it expected the recovery in retail sales to continue as the COVID situation remained under control. As before, we note that inflationary pressures and recession concerns might be negative factors affecting the global downstream demand for diamonds
#diamonds
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Morning Bites
🚗💨China’s new internal combustion engine car sales grew 8% YoY in June, reversing from the 26% YoY decline in May. The recovery might have been caused by COVID restrictions being eased, car plate quotas extended and the provision of vehicle purchase tax relief. Given that the country’s automotive sector accounts for some 26% and 17% of global autocatalyst Pd and Pt demand, respectively, this might be supportive for PGM demand
🚙The growth rate of China’s new EV sales accelerated to 129% YoY in June, from 105% YoY in May. We note that the recently announced support measures might further drive EV sales in the coming months. That would be positive 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)
#cars #EV #nickel #lithium #cobalt
🚗💨China’s new internal combustion engine car sales grew 8% YoY in June, reversing from the 26% YoY decline in May. The recovery might have been caused by COVID restrictions being eased, car plate quotas extended and the provision of vehicle purchase tax relief. Given that the country’s automotive sector accounts for some 26% and 17% of global autocatalyst Pd and Pt demand, respectively, this might be supportive for PGM demand
🚙The growth rate of China’s new EV sales accelerated to 129% YoY in June, from 105% YoY in May. We note that the recently announced support measures might further drive EV sales in the coming months. That would be positive 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)
#cars #EV #nickel #lithium #cobalt
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🗞Today China published preliminary import/export statistics for June. See preliminary data in the table above
#statistics #China
#statistics #China
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Morning Bites
📉CISA mills’ daily crude steel output declined 1.2% in early July from the last ten days of June, or a 2.9% YoY drop (vs. the 7.3% YoY decline in late June). The continued reduction in steel output was likely caused by the weak domestic steel demand and the high level of steel inventories, which rose 6.5% from 30 June to 10 July and were up 28.4% YoY as of 10 July
💎Mountain Province has reported an 18% YoY decrease in rough diamond sales, to 587kct for USD 76mn, in 2Q22. The average realised price of USD 130/ct was down 2% QoQ but up 78% YoY due to strong US retail demand. The company’s rough diamond output fell 29% YoY to 1.3mnct in 2Q22, due to issues with the processing plant. As a result, the company lowered its 2022 production guidance 10% to 5.6-5.8mnct. The company retains its positive outlook on diamond demand amid strong US sales and the anticipated recovery of the Chinese market. However, we see risks associated with rising inflation and recession concerns
#steel #diamonds
📉CISA mills’ daily crude steel output declined 1.2% in early July from the last ten days of June, or a 2.9% YoY drop (vs. the 7.3% YoY decline in late June). The continued reduction in steel output was likely caused by the weak domestic steel demand and the high level of steel inventories, which rose 6.5% from 30 June to 10 July and were up 28.4% YoY as of 10 July
💎Mountain Province has reported an 18% YoY decrease in rough diamond sales, to 587kct for USD 76mn, in 2Q22. The average realised price of USD 130/ct was down 2% QoQ but up 78% YoY due to strong US retail demand. The company’s rough diamond output fell 29% YoY to 1.3mnct in 2Q22, due to issues with the processing plant. As a result, the company lowered its 2022 production guidance 10% to 5.6-5.8mnct. The company retains its positive outlook on diamond demand amid strong US sales and the anticipated recovery of the Chinese market. However, we see risks associated with rising inflation and recession concerns
#steel #diamonds
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China’s import/export statistics for June - highlights
• China’s unwrought copper imports were up 26% YoY in June (vs. 4% YoY increase in May). The growth might have been driven by the partial recovery of manufacturing activity in China following the lifting of COVID lockdowns
• China’s unwrought aluminium and product exports rose 34% YoY in June (vs. 54% YoY growth in May). According to industry reports, the growth rate deceleration might have been caused by subdued aluminium demand outside China and the resumption of anti-dumping tariffs in the EU. These factors might further slow-down China’s aluminium exports in the short term
• The growth rate of China’s finished steel net exports decelerated to 30% YoY in June from 71% YoY in May. However, we note that China’s steel demand apparently remains relatively weak, which was reflected by the 7% decrease in the daily crude steel output through the last ten days of June
#China #copper #aluminium #steel
• China’s unwrought copper imports were up 26% YoY in June (vs. 4% YoY increase in May). The growth might have been driven by the partial recovery of manufacturing activity in China following the lifting of COVID lockdowns
• China’s unwrought aluminium and product exports rose 34% YoY in June (vs. 54% YoY growth in May). According to industry reports, the growth rate deceleration might have been caused by subdued aluminium demand outside China and the resumption of anti-dumping tariffs in the EU. These factors might further slow-down China’s aluminium exports in the short term
• The growth rate of China’s finished steel net exports decelerated to 30% YoY in June from 71% YoY in May. However, we note that China’s steel demand apparently remains relatively weak, which was reflected by the 7% decrease in the daily crude steel output through the last ten days of June
#China #copper #aluminium #steel
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Iron ore – the outlook remains negative
• The prospects for the iron ore market remain poor, due to the collapse in demand caused by the slowdown in global manufacturing and construction, as well as COVID-related risks in China and Europe. As a result, global steel output fell 3.5% YoY May (6.3% YoY in 5mo22) and is likely to remain subdued until YE22, we think. Another important factor that could keep steel production weak is China’s plan to reduce steel output in 2022. As such, China is likely to keep the reduced late-June output run-rates in order to achieve the regulator’s targets
• On the supply side, the iron ore exports of the two major players, Australia and Brazil, were roughly flat YoY in 4mo22. Moreover, industry reports suggest an increase in iron ore supply in the coming months
• As a result of sluggish iron ore demand, prices have fallen 6% since mid-May. As prices might only find costs support at the ~USD 70/t level, there is a room for a further correction in the coming months
#iron_ore
• The prospects for the iron ore market remain poor, due to the collapse in demand caused by the slowdown in global manufacturing and construction, as well as COVID-related risks in China and Europe. As a result, global steel output fell 3.5% YoY May (6.3% YoY in 5mo22) and is likely to remain subdued until YE22, we think. Another important factor that could keep steel production weak is China’s plan to reduce steel output in 2022. As such, China is likely to keep the reduced late-June output run-rates in order to achieve the regulator’s targets
• On the supply side, the iron ore exports of the two major players, Australia and Brazil, were roughly flat YoY in 4mo22. Moreover, industry reports suggest an increase in iron ore supply in the coming months
• As a result of sluggish iron ore demand, prices have fallen 6% since mid-May. As prices might only find costs support at the ~USD 70/t level, there is a room for a further correction in the coming months
#iron_ore
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Valuation update of key iron ore producers
💰Three of the four largest iron ore producers look too expensive, with RIO being the most heavily mispriced: the company trades at 5.2x 1-y fwd EV/EBITDA on spot, which exceeds the multiples of its peers. BHP and VALE trade at 2.9-3.2x 1-y fwd EV/EBITDA on spot, offering a 14-17% FCF yield and a 12-15% dividend and buyback yield
📉Given the negative outlook on iron ore prices, these iron ore companies look even more expensive
💰If iron ore price to fall to USD 70/t, the aforementioned companies would be trading at 4.2-8.5x 1-y fwd EV/EBITDA, a 3-11% FCF yield and a 6-10% dividend and buyback yield
💰Out of the four major iron ore producers, only FMG looks, perhaps, fairly valued, with 2.7x EV/EBITDA, a 21% FCF yield and a 16% dividend and buyback yield
#iron_ore
💰Three of the four largest iron ore producers look too expensive, with RIO being the most heavily mispriced: the company trades at 5.2x 1-y fwd EV/EBITDA on spot, which exceeds the multiples of its peers. BHP and VALE trade at 2.9-3.2x 1-y fwd EV/EBITDA on spot, offering a 14-17% FCF yield and a 12-15% dividend and buyback yield
📉Given the negative outlook on iron ore prices, these iron ore companies look even more expensive
💰If iron ore price to fall to USD 70/t, the aforementioned companies would be trading at 4.2-8.5x 1-y fwd EV/EBITDA, a 3-11% FCF yield and a 6-10% dividend and buyback yield
💰Out of the four major iron ore producers, only FMG looks, perhaps, fairly valued, with 2.7x EV/EBITDA, a 21% FCF yield and a 16% dividend and buyback yield
#iron_ore
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Morning Bites
📌South Africa’s PGM mining production was up 3% YoY in May, recovering from the 23% YoY decline in April. Meanwhile, the country’s gold output fell 28% YoY in May, which was equal to April’s rate of decline. The recovery of PGM production might have been partially caused by the restart of a furnace at Impala Platinum’s Rustenburg production facility (originally scheduled for May). According to Bloomberg, South Africa’s mining sector is currently being affected by frequent power cuts, which might put further pressure on the county’s mining production. We note that South Africa accounts for some 70% and 34% of platinum and palladium supply, respectively, and for 3% of global gold production
#PGMs #gold
📌South Africa’s PGM mining production was up 3% YoY in May, recovering from the 23% YoY decline in April. Meanwhile, the country’s gold output fell 28% YoY in May, which was equal to April’s rate of decline. The recovery of PGM production might have been partially caused by the restart of a furnace at Impala Platinum’s Rustenburg production facility (originally scheduled for May). According to Bloomberg, South Africa’s mining sector is currently being affected by frequent power cuts, which might put further pressure on the county’s mining production. We note that South Africa accounts for some 70% and 34% of platinum and palladium supply, respectively, and for 3% of global gold production
#PGMs #gold
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🗞Today, China has published its industrial production data for June (see the table above)
#statistics #China
#statistics #China
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China’s industrial production data for June - highlights (part 1)
📌China’s crude steel output fell 3.3% YoY in June (vs. -3.5% YoY in May). The decline was mainly caused by the subdued steel demand on the back of weak manufacturing activity and a slowdown in the construction sector. China’s apparent steel consumption dropped 5% YoY in June (vs. -7% YoY in May)
🏢China property sales fell 18% YoY in June (vs. -32% YoY in May). Moreover, floor space starts decreased 45% YoY in June (vs. -42% YoY in May). At the same time, the decline rate of property completions accelerated to 41% YoY in June from 31% YoY in May. China’s personal mortgage loans continued to fall as well, with a 20% YoY decline in June (vs. -34% YoY in May). The ongoing weakening of China’s real estate sector is negative for industrial metals demand. However, China’s economic stimulus measures might improve the situation to some extent
#China #steel #aluminium #copper
📌China’s crude steel output fell 3.3% YoY in June (vs. -3.5% YoY in May). The decline was mainly caused by the subdued steel demand on the back of weak manufacturing activity and a slowdown in the construction sector. China’s apparent steel consumption dropped 5% YoY in June (vs. -7% YoY in May)
🏢China property sales fell 18% YoY in June (vs. -32% YoY in May). Moreover, floor space starts decreased 45% YoY in June (vs. -42% YoY in May). At the same time, the decline rate of property completions accelerated to 41% YoY in June from 31% YoY in May. China’s personal mortgage loans continued to fall as well, with a 20% YoY decline in June (vs. -34% YoY in May). The ongoing weakening of China’s real estate sector is negative for industrial metals demand. However, China’s economic stimulus measures might improve the situation to some extent
#China #steel #aluminium #copper
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China’s industrial production data for June - highlights (part 2)
🪨China’s coal production rose 15% YoY in June after a 10% YoY increase in May. The growth might have been caused by China’s intention to ensure sufficient domestic coal supplies. Some Chinese coal mining provinces target a 10% YoY increase in coal production in 2022. However, according to industry sources, China’s miners are now switching to lower quality coal, as the domestic price cap is almost 4x lower than the spot price (with no quality adjustment). According to Reuters, some utilities in China are now consuming 15% YoY more thermal coal due to its lower quality
#China #coal
🪨China’s coal production rose 15% YoY in June after a 10% YoY increase in May. The growth might have been caused by China’s intention to ensure sufficient domestic coal supplies. Some Chinese coal mining provinces target a 10% YoY increase in coal production in 2022. However, according to industry sources, China’s miners are now switching to lower quality coal, as the domestic price cap is almost 4x lower than the spot price (with no quality adjustment). According to Reuters, some utilities in China are now consuming 15% YoY more thermal coal due to its lower quality
#China #coal
Morning Bites
💎India’s rough diamond net imports rose 4% YoY in June (vs. +17% YoY in May). Meanwhile, India’s polished diamond net exports were down 1% YoY in June (vs. +5% YoY in May). The weaker growth in rough net imports and the slight decline in polished net exports might signal softer demand for polished diamonds. Previously, we have noted that surging inflation and recession concerns pose risks to the downstream demand for diamonds. Meanwhile, India’s lab-grown rough diamond net imports rose 45% YoY in June (vs. +20% YoY in May). The share of lab-grown net rough imports in natural diamond imports remained at 8% in June (the same as in May)
🚘EU + UK passenger car registrations fell 17% YoY in June (vs. -13% YoY in May). This was also 29% below the peak 2019 level. The actual dynamics were in line with the preliminary estimate we reported earlier. The decline in car sales has been caused by the shortage of parts and by rising inflation. Falling car sales are negative for PGM demand
#diamonds #cars
💎India’s rough diamond net imports rose 4% YoY in June (vs. +17% YoY in May). Meanwhile, India’s polished diamond net exports were down 1% YoY in June (vs. +5% YoY in May). The weaker growth in rough net imports and the slight decline in polished net exports might signal softer demand for polished diamonds. Previously, we have noted that surging inflation and recession concerns pose risks to the downstream demand for diamonds. Meanwhile, India’s lab-grown rough diamond net imports rose 45% YoY in June (vs. +20% YoY in May). The share of lab-grown net rough imports in natural diamond imports remained at 8% in June (the same as in May)
🚘EU + UK passenger car registrations fell 17% YoY in June (vs. -13% YoY in May). This was also 29% below the peak 2019 level. The actual dynamics were in line with the preliminary estimate we reported earlier. The decline in car sales has been caused by the shortage of parts and by rising inflation. Falling car sales are negative for PGM demand
#diamonds #cars
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