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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Morning Bites (part 1)
📉China’s domestic excavator sales fell 35% YoY in June (after the 45% YoY decline in May), while total excavator sales (domestic + export) were down 10% YoY in June (vs. a 24% YoY drop in May). Although the rate of decline has been decelerating gradually over the last three months, falling excavator sales indicate that construction activity might remain weak, which is negative for the demand for industrial metals
🏦China’s aggregate financing rose 41% YoY in June, outperforming market expectations by 23%. Traditional bank loans were up 33% YoY, exceeding the consensus forecast by 17%. According to Bloomberg, China’s credit growth was driven by the implementation of government support measures, the easing of COVID restrictions and significant government bond sales. We note that the increase in aggregate financing might potentially support China’s property sector and, hence, the demand for industrial metals in the coming months
#China #global #steel #aluminium #copper
📉China’s domestic excavator sales fell 35% YoY in June (after the 45% YoY decline in May), while total excavator sales (domestic + export) were down 10% YoY in June (vs. a 24% YoY drop in May). Although the rate of decline has been decelerating gradually over the last three months, falling excavator sales indicate that construction activity might remain weak, which is negative for the demand for industrial metals
🏦China’s aggregate financing rose 41% YoY in June, outperforming market expectations by 23%. Traditional bank loans were up 33% YoY, exceeding the consensus forecast by 17%. According to Bloomberg, China’s credit growth was driven by the implementation of government support measures, the easing of COVID restrictions and significant government bond sales. We note that the increase in aggregate financing might potentially support China’s property sector and, hence, the demand for industrial metals in the coming months
#China #global #steel #aluminium #copper
Morning Bites (part 2)
☢️Uzbekistan’s annual uranium output might reach 7,100tU/a by 2030, doubling from the roughly 3,500tU/a it currently produces, according to a recently released resolution of the President of Uzbekistan. This implies an 8% 2021-30 CAGR. Given that the planned increase in annual production accounts for some 7% of global uranium supply, this might negatively affect uranium prices in the long run
#uranium
☢️Uzbekistan’s annual uranium output might reach 7,100tU/a by 2030, doubling from the roughly 3,500tU/a it currently produces, according to a recently released resolution of the President of Uzbekistan. This implies an 8% 2021-30 CAGR. Given that the planned increase in annual production accounts for some 7% of global uranium supply, this might negatively affect uranium prices in the long run
#uranium
Morning Bites (part 1)
💍According to China’s jewellery retailers, there was an 18-19% YoY decline in LFL (same store) sales of gem-set jewellery in 2Q22. Chow Tai Fook reported an 18% YoY drop in LFL sales of gem-set, platinum and K-gold jewellery in 2Q22. Sales in Mainland China fell 17%, while HK and Macau sales decreased 18% YoY. Meanwhile, Luk Fook reported a 19% YoY decline in gem-set jewellery sales in 2Q22. In Mainland China, gem-set jewellery sales were down 34% YoY, while in HK and Macau they decreased 21% YoY. The decline was mostly caused by COVID-19 restrictions. Weakening jewellery sales are negative for the demand for diamonds. However, China’s jewellery sales might recover somewhat in 3Q22 if the country does not reimpose restrictions in response to the rising number of COVID cases
#diamonds
💍According to China’s jewellery retailers, there was an 18-19% YoY decline in LFL (same store) sales of gem-set jewellery in 2Q22. Chow Tai Fook reported an 18% YoY drop in LFL sales of gem-set, platinum and K-gold jewellery in 2Q22. Sales in Mainland China fell 17%, while HK and Macau sales decreased 18% YoY. Meanwhile, Luk Fook reported a 19% YoY decline in gem-set jewellery sales in 2Q22. In Mainland China, gem-set jewellery sales were down 34% YoY, while in HK and Macau they decreased 21% YoY. The decline was mostly caused by COVID-19 restrictions. Weakening jewellery sales are negative for the demand for diamonds. However, China’s jewellery sales might recover somewhat in 3Q22 if the country does not reimpose restrictions in response to the rising number of COVID cases
#diamonds
Morning Bites (part 2)
💎Petra Diamonds reported a 46% YoY increase in revenues in 2Q22, which was mostly driven by the 42% YoY growth of the average realised price. Previously, Petra reported a 7.7% increase in LfL rough diamond prices at Tender 6 relative to Tender 5. Even though the company said that the diamond market remained strong, it also noted that rising inflation might be a potential dampener on diamond demand. In addition, Petra reported a 6% YoY decrease in diamond production in 2Q22, mostly on the back of lower tonnes treated at Cullinan Mine. Nevertheless, the company reiterated its production and cost guidance through FY2025 (ending June)
#diamonds $PDL
💎Petra Diamonds reported a 46% YoY increase in revenues in 2Q22, which was mostly driven by the 42% YoY growth of the average realised price. Previously, Petra reported a 7.7% increase in LfL rough diamond prices at Tender 6 relative to Tender 5. Even though the company said that the diamond market remained strong, it also noted that rising inflation might be a potential dampener on diamond demand. In addition, Petra reported a 6% YoY decrease in diamond production in 2Q22, mostly on the back of lower tonnes treated at Cullinan Mine. Nevertheless, the company reiterated its production and cost guidance through FY2025 (ending June)
#diamonds $PDL
Morning Bites (part 3)
☢️Paladin Energy has confirmed its plan to restart Namibia’s Langer Heinrich uranium mine in 1Q24. The company had previously released a restart plan, but did not specify the date. According to the plan, production at Langer Heinrich might reach 2,300tU (5% of global uranium supply) after full ramp-up, which might take 15 months. Since the restart plan was available before, this news is neutral for our market balance forecast
#uranium
☢️Paladin Energy has confirmed its plan to restart Namibia’s Langer Heinrich uranium mine in 1Q24. The company had previously released a restart plan, but did not specify the date. According to the plan, production at Langer Heinrich might reach 2,300tU (5% of global uranium supply) after full ramp-up, which might take 15 months. Since the restart plan was available before, this news is neutral for our market balance forecast
#uranium
🔗Ashinsky Metallurgical Plant – strong 1H22 RAS numbers are out
📌Ashinsky’s (AMEZ RM) RAS revenue expanded 20% YoY in 1H22. The company has released neither operating data nor any other comments so far, but we believe that the increase was mainly driven by a realised price increase, which, in turn, benefited from the expansion of the premium over the benchmark
📌1H22, net profit surged more than 120% YoY, driven up by ~45% higher operating profit as well as strong ‘other income’
💰At spot the company trades at an attractive level of 0.7x 1-y fwd EV/EBITDA (vs. 3.4x for Russian steelmakers’ median) with a lucrative >45% FCF yield. Moreover, the company is net cash positive (c. 35% of mcap by YE22), which is to expand further, almost reaching 70% of the company’s mcap by YE24, in our estimates
#steel
📌Ashinsky’s (AMEZ RM) RAS revenue expanded 20% YoY in 1H22. The company has released neither operating data nor any other comments so far, but we believe that the increase was mainly driven by a realised price increase, which, in turn, benefited from the expansion of the premium over the benchmark
📌1H22, net profit surged more than 120% YoY, driven up by ~45% higher operating profit as well as strong ‘other income’
💰At spot the company trades at an attractive level of 0.7x 1-y fwd EV/EBITDA (vs. 3.4x for Russian steelmakers’ median) with a lucrative >45% FCF yield. Moreover, the company is net cash positive (c. 35% of mcap by YE22), which is to expand further, almost reaching 70% of the company’s mcap by YE24, in our estimates
#steel
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Morning Bites (part 1)
🚗💨Internal combustion engine (ICE) car registrations in the EU fell 25% YoY in 2Q22 (after the 26% YoY decline in 1Q22). Petrol car sales were down 23% YoY in 2Q22 (vs. -21% YoY in 1Q22), while diesel car registrations slid 29% YoY in 2Q22 (decelerating from the 35% YoY drop in 1Q22). Diesel cars constituted 29% of ICE car sales in 2Q22, as they did in 1Q22 and 4Q21. Weak ICE car sales are unfavourable for PGM demand
🚘EU and UK EV sales fell 2% YoY in 2Q22 (vs. +24% YoY in 1Q22), the first negative dynamics since 4Q16. The decline was mostly driven by the 16% YoY drop in PHEV sales in 2Q22 (vs. -6% YoY in 1Q22). Moreover, even though BEV sales rose 11% YoY in 2Q22 (vs. +61% YoY in 1Q22), this was the weakest growth rate since 2Q20. The modest dynamics of Europe’s EV sales is slightly negative for the demand for battery metals: nickel, lithium and cobalt
#cars #EV #nickel #lithium #cobalt
🚗💨Internal combustion engine (ICE) car registrations in the EU fell 25% YoY in 2Q22 (after the 26% YoY decline in 1Q22). Petrol car sales were down 23% YoY in 2Q22 (vs. -21% YoY in 1Q22), while diesel car registrations slid 29% YoY in 2Q22 (decelerating from the 35% YoY drop in 1Q22). Diesel cars constituted 29% of ICE car sales in 2Q22, as they did in 1Q22 and 4Q21. Weak ICE car sales are unfavourable for PGM demand
🚘EU and UK EV sales fell 2% YoY in 2Q22 (vs. +24% YoY in 1Q22), the first negative dynamics since 4Q16. The decline was mostly driven by the 16% YoY drop in PHEV sales in 2Q22 (vs. -6% YoY in 1Q22). Moreover, even though BEV sales rose 11% YoY in 2Q22 (vs. +61% YoY in 1Q22), this was the weakest growth rate since 2Q20. The modest dynamics of Europe’s EV sales is slightly negative for the demand for battery metals: nickel, lithium and cobalt
#cars #EV #nickel #lithium #cobalt
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Morning Bites (part 2)
💍Richemont jewellery segment sales were up 20% YoY in 2Q22, a deceleration from the 30% YoY in 1Q22 and 41% YoY in 4Q21. According to the company, jewellery sales generated positive growth across all regions, excluding China (which was hit by lockdowns). Richemont did not provide any outlook, but we have seen jewellery sales starting to lose momentum, which might constrain the growth of diamond demand in the coming months
#diamonds
💍Richemont jewellery segment sales were up 20% YoY in 2Q22, a deceleration from the 30% YoY in 1Q22 and 41% YoY in 4Q21. According to the company, jewellery sales generated positive growth across all regions, excluding China (which was hit by lockdowns). Richemont did not provide any outlook, but we have seen jewellery sales starting to lose momentum, which might constrain the growth of diamond demand in the coming months
#diamonds
Morning Bites
💎De Beers has reported a 4% YoY decrease in rough diamond production to 7.9mnct in 2Q22. According to the company, the decline was caused by the treatment of lower grade ore at operations in Botswana and Canada. Nevertheless, De Beers increased its 2022 production guidance 5% to 32-34mnct, from 30-33mnct. Rough diamond sales from the 3 cycles in 2Q22 totalled 8.3mnct, which was 28% above the 6.5mnct from 2 cycles in 2Q21. However, the company noted that the deterioration in global macroeconomic conditions could negatively impact diamond jewellery demand
🪨Russia's coal production was roughly flat YoY in 1H22, according to Russia's Minister of Energy. Metal Expert reports that in 5mo22, Russia’s output of thermal and coking coal was down 1% YoY and flat YoY, respectively. Thus, if coal output was flat YoY in 1H22, production must have grown 5% YoY in June, which looks quite upbeat. If the May dynamics continued in June, coal output might have been down 1% YoY in 1H22
$AAL #diamonds #coal
💎De Beers has reported a 4% YoY decrease in rough diamond production to 7.9mnct in 2Q22. According to the company, the decline was caused by the treatment of lower grade ore at operations in Botswana and Canada. Nevertheless, De Beers increased its 2022 production guidance 5% to 32-34mnct, from 30-33mnct. Rough diamond sales from the 3 cycles in 2Q22 totalled 8.3mnct, which was 28% above the 6.5mnct from 2 cycles in 2Q21. However, the company noted that the deterioration in global macroeconomic conditions could negatively impact diamond jewellery demand
🪨Russia's coal production was roughly flat YoY in 1H22, according to Russia's Minister of Energy. Metal Expert reports that in 5mo22, Russia’s output of thermal and coking coal was down 1% YoY and flat YoY, respectively. Thus, if coal output was flat YoY in 1H22, production must have grown 5% YoY in June, which looks quite upbeat. If the May dynamics continued in June, coal output might have been down 1% YoY in 1H22
$AAL #diamonds #coal
Morning Bites
📉Global crude steel output fell 5.9% YoY to 158mnt in June, with the rate of decline accelerating from 3.5% YoY in May, according to the World Steel Association. China's steel output was down 3.3% YoY (vs. -3.5% in May) and accounted for 57% of world steel production in June, as well as in May. Meanwhile, ex-China steel production decreased 9.2% YoY in June (vs. -3.5% YoY in May). US steel production fell 4.2% YoY in June (vs. 2.6% YoY decline in May), while EU crude steel output was down 12.2% YoY in June, with the rate of decline accelerating from 6.8% YoY in May. Notably, Russia’s steel production dropped 22.2% YoY in June (vs. -1.4% YoY in May). We believe that global steel output might continue to decline in the coming months on the back of the global economic slowdown and China’s planned steel output reduction relative to 2021 level, which might further depress the iron ore demand
#steel
📉Global crude steel output fell 5.9% YoY to 158mnt in June, with the rate of decline accelerating from 3.5% YoY in May, according to the World Steel Association. China's steel output was down 3.3% YoY (vs. -3.5% in May) and accounted for 57% of world steel production in June, as well as in May. Meanwhile, ex-China steel production decreased 9.2% YoY in June (vs. -3.5% YoY in May). US steel production fell 4.2% YoY in June (vs. 2.6% YoY decline in May), while EU crude steel output was down 12.2% YoY in June, with the rate of decline accelerating from 6.8% YoY in May. Notably, Russia’s steel production dropped 22.2% YoY in June (vs. -1.4% YoY in May). We believe that global steel output might continue to decline in the coming months on the back of the global economic slowdown and China’s planned steel output reduction relative to 2021 level, which might further depress the iron ore demand
#steel
Thermal coal - a cheaper alternative to gas
📌Global energy crisis gains momentum given limited availability of gas, high air temperatures and issues with electricity generation from renewable sources. This leads to the increased usage of thermal coal for electricity generation, despite ecological concerns
⚖️According to our calculations, to replace 1kcm of gas, 1.1-1.3t of thermal coal is required (depending on energy efficiency of generation capacities), which is some 68-73% cheaper at current prices. This makes thermal coal a cheaper alternative to gas, which becomes highly demanded in the current economic environment
#coal
📌Global energy crisis gains momentum given limited availability of gas, high air temperatures and issues with electricity generation from renewable sources. This leads to the increased usage of thermal coal for electricity generation, despite ecological concerns
⚖️According to our calculations, to replace 1kcm of gas, 1.1-1.3t of thermal coal is required (depending on energy efficiency of generation capacities), which is some 68-73% cheaper at current prices. This makes thermal coal a cheaper alternative to gas, which becomes highly demanded in the current economic environment
#coal
Thermal coal - the supply is limited
🪨Thermal coal supply fails to keep up with demand growth. The coal sector is underinvested, given prior to the energy crisis the margins were low and the prospects were gloomy as many countries were reducing coal consumption
⛏Moreover, China has issues with coal caloricity. According to industry sources, China’s miners are now switching to lower quality coal, as domestic price cap is almost 4x lower vs. spot price (with no quality adjustment). According to Reuters, some utilities in China are now consuming 15% YoY more coal due to its lower quality. As a result, in June, despite the 15% YoY increase in coal production, China’s thermal power generation fell 6% YoY
📉Coal supply is being further tightened by restrictions on Russia’s exports that used to account for 17% of the thermal coal market. In May, Russia’s thermal coal exports fell 23% YoY (-8% YoY in 5mo22). The situation will further worsen amid kick-off of embargo on Russian coal imports in EU in August
#coal
🪨Thermal coal supply fails to keep up with demand growth. The coal sector is underinvested, given prior to the energy crisis the margins were low and the prospects were gloomy as many countries were reducing coal consumption
⛏Moreover, China has issues with coal caloricity. According to industry sources, China’s miners are now switching to lower quality coal, as domestic price cap is almost 4x lower vs. spot price (with no quality adjustment). According to Reuters, some utilities in China are now consuming 15% YoY more coal due to its lower quality. As a result, in June, despite the 15% YoY increase in coal production, China’s thermal power generation fell 6% YoY
📉Coal supply is being further tightened by restrictions on Russia’s exports that used to account for 17% of the thermal coal market. In May, Russia’s thermal coal exports fell 23% YoY (-8% YoY in 5mo22). The situation will further worsen amid kick-off of embargo on Russian coal imports in EU in August
#coal
Coal and gas price dynamics
🚀Energy crisis and tight gas supply led to the 80% increase in TTF gas price since the beginning of June (up 105% YTD). Meanwhile, thermal coal FOB Newcastle rose 7% since the beginning of June (up 140% YTD)
📌As a result of the growing demand for thermal coal and the weak demand for coking coal from steelmakers, some thermal coal prices currently exceed the prices of semi-soft coking coal that might be used as a substitute for thermal coal. In particular, thermal coal FOB Newcastle trades at USD 420/t, while Australian semi-soft coking coal price fell to USD 190/t
📈Thermal coal prices might continue to grow. As we noted previously, to replace 1kcm of gas, 1.1-1.3t of thermal coal is required, which implies an upside for coal price to above USD 1,000/t with certain limitations, such as lower availability of generation plants. We note that, given semi-soft coking coal might be used for power generation, there is also some upside for coking coal prices
#coal
🚀Energy crisis and tight gas supply led to the 80% increase in TTF gas price since the beginning of June (up 105% YTD). Meanwhile, thermal coal FOB Newcastle rose 7% since the beginning of June (up 140% YTD)
📌As a result of the growing demand for thermal coal and the weak demand for coking coal from steelmakers, some thermal coal prices currently exceed the prices of semi-soft coking coal that might be used as a substitute for thermal coal. In particular, thermal coal FOB Newcastle trades at USD 420/t, while Australian semi-soft coking coal price fell to USD 190/t
📈Thermal coal prices might continue to grow. As we noted previously, to replace 1kcm of gas, 1.1-1.3t of thermal coal is required, which implies an upside for coal price to above USD 1,000/t with certain limitations, such as lower availability of generation plants. We note that, given semi-soft coking coal might be used for power generation, there is also some upside for coking coal prices
#coal
Which companies could benefit from growing coal prices?
📌We would consider 7 companies: Peabody (BTU US), Warrior Met Coal (HCC US), Mongolian Mining Corp. (MMC, 975 HK), Thungela (TGA LN), Mechel (MTLR RX), Raspadskaya (RASP RX) and Glencore (GLEN LN)
💰On spot, TGA and BTU look the most appealing. TGA trades at -0.1x 1-y fwd EV/EBITDA and offers a 126% FCF yield. Meanwhile, BTU trades at 0.8x EV/EBITDA and has a 54% FCF yield
💰MMC, HCC and RASP are a bit more expensive: 1.3-1.5x EV/EBITDA and 24-48% FCF yield. Out of these 7 firms, GLEN and MTLR appear to be the most expensive: 2.1-4.6x EV/EBITDA and 23-40% FCF yield
#coal
📌We would consider 7 companies: Peabody (BTU US), Warrior Met Coal (HCC US), Mongolian Mining Corp. (MMC, 975 HK), Thungela (TGA LN), Mechel (MTLR RX), Raspadskaya (RASP RX) and Glencore (GLEN LN)
💰On spot, TGA and BTU look the most appealing. TGA trades at -0.1x 1-y fwd EV/EBITDA and offers a 126% FCF yield. Meanwhile, BTU trades at 0.8x EV/EBITDA and has a 54% FCF yield
💰MMC, HCC and RASP are a bit more expensive: 1.3-1.5x EV/EBITDA and 24-48% FCF yield. Out of these 7 firms, GLEN and MTLR appear to be the most expensive: 2.1-4.6x EV/EBITDA and 23-40% FCF yield
#coal