What is happening with Steelmaking margins?
🔗Global demand for steel continues to fall amid the global economic slowdown. The WSA data shows global crude steel production falling 6% YoY in June, after the 3.5% YoY decline in May (with a significant 9% YoY drop in ex-China, including a 12% YoY decrease in Europe).
📉Affected by sluggish demand, global steel quotes continue to plunge. Chinese steel prices have already lost 33% since the beg. Apr. As a result, the Chinese steelmaking margin fell 25% over the corresponding period.
📉Shrinking margins put pressure on the raw materials basket price, which is also down ~40% since beg-April, with broadly the same rate of decline for iron ore and coking coal (both HCC and SSCC).
❗️The pressure on the RM basket is likely to persist in the short-to-medium-term amid global economy uncertainty and weak steel demand. In the mid-cycle, the basket price might further decrease >15% below the spot level
Check more on metals-wire.com/page/steel
#steel
🔗Global demand for steel continues to fall amid the global economic slowdown. The WSA data shows global crude steel production falling 6% YoY in June, after the 3.5% YoY decline in May (with a significant 9% YoY drop in ex-China, including a 12% YoY decrease in Europe).
📉Affected by sluggish demand, global steel quotes continue to plunge. Chinese steel prices have already lost 33% since the beg. Apr. As a result, the Chinese steelmaking margin fell 25% over the corresponding period.
📉Shrinking margins put pressure on the raw materials basket price, which is also down ~40% since beg-April, with broadly the same rate of decline for iron ore and coking coal (both HCC and SSCC).
❗️The pressure on the RM basket is likely to persist in the short-to-medium-term amid global economy uncertainty and weak steel demand. In the mid-cycle, the basket price might further decrease >15% below the spot level
Check more on metals-wire.com/page/steel
#steel
🔗How do steelmakers look now?
•Among steelmakers, we would consider 6 companies: ArcelorMital (MT US), US Steel (X US), Severstal (CHMF RX), MMK (MAGN RX), NLMK (NLMK RX) and Erdemir (EREGL TI)
💰Despite the appealing valuations of global steelmakers (X US and MT US trade at 0.6-0.9х 1-y fwd EV/EBITDA and with ~50-60% FCF yields), the momentum for steels remains negative. We anticipate global steel prices cooling further, with more recession-related news to hit steelmakers’ quotes
📉For Russian steelmakers, on top of the weakening global steel market, we expect sector newsflow to remain negative in the next couple of months. As such, the short-term pressure is likely to persist and an attractive entry point might be some 1-2 months ahead
#steel
•Among steelmakers, we would consider 6 companies: ArcelorMital (MT US), US Steel (X US), Severstal (CHMF RX), MMK (MAGN RX), NLMK (NLMK RX) and Erdemir (EREGL TI)
💰Despite the appealing valuations of global steelmakers (X US and MT US trade at 0.6-0.9х 1-y fwd EV/EBITDA and with ~50-60% FCF yields), the momentum for steels remains negative. We anticipate global steel prices cooling further, with more recession-related news to hit steelmakers’ quotes
📉For Russian steelmakers, on top of the weakening global steel market, we expect sector newsflow to remain negative in the next couple of months. As such, the short-term pressure is likely to persist and an attractive entry point might be some 1-2 months ahead
#steel
Morning Bites
💍LVMH has reported a 13% YoY increase in the organic sales of watches and jewellery in 2Q22. Even though the growth rate remained strong, it decelerated from 19% YoY in 1Q22 and 21% YoY in 4Q21. According to the company, the growth was mainly driven by the continuing momentum in US jewellery sales. However, in its 2022 outlook the company noted risks related to the current economic environment and to the pandemic. We also believe that inflationary pressure and the global economic slowdown pose risks to the downstream diamond demand
💍China’s jewellery and watch retail sales rose 8% YoY in June, bouncing back from the 16% YoY decline in May. The recovery was mostly caused by easing COVID restrictions in the country. The rebound of China’s jewellery sales was positive for diamond demand; however, the future dynamics is subject to the risk of global recession
#diamonds
💍LVMH has reported a 13% YoY increase in the organic sales of watches and jewellery in 2Q22. Even though the growth rate remained strong, it decelerated from 19% YoY in 1Q22 and 21% YoY in 4Q21. According to the company, the growth was mainly driven by the continuing momentum in US jewellery sales. However, in its 2022 outlook the company noted risks related to the current economic environment and to the pandemic. We also believe that inflationary pressure and the global economic slowdown pose risks to the downstream diamond demand
💍China’s jewellery and watch retail sales rose 8% YoY in June, bouncing back from the 16% YoY decline in May. The recovery was mostly caused by easing COVID restrictions in the country. The rebound of China’s jewellery sales was positive for diamond demand; however, the future dynamics is subject to the risk of global recession
#diamonds
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Morning Bites (part 1)
💎De Beers has reported sales of USD 630mn at its 6th cycle in 2022. This was 23% above the historical average and also 23% higher YoY. According to De Beers CEO Bruce Cleaver, the company saw steady demand for rough diamonds in the 6th cycle, although the diamond industry might be exposed to the risks that the current macroeconomic conditions are bringing to consumer sentiment
#diamonds
💎De Beers has reported sales of USD 630mn at its 6th cycle in 2022. This was 23% above the historical average and also 23% higher YoY. According to De Beers CEO Bruce Cleaver, the company saw steady demand for rough diamonds in the 6th cycle, although the diamond industry might be exposed to the risks that the current macroeconomic conditions are bringing to consumer sentiment
#diamonds
Morning Bites (part 2)
📉Russian gold output fell 13.6% YoY in June, with the decline accelerating from 9.0% YoY in May. In 1H22, the country’s gold production was down 6.7% YoY. If Russia’s gold production continues to decline at the June rate, the total output for 2022 might be down ~10% YoY (which would be close to the estimate previously provided by the Union of Gold Producers of Russia). Given that in 2021, Russia accounted for some 9% of global gold mine production, this might slightly support gold prices
🏆China’s gold output rose 17% YoY in 2Q22 (vs. +12% YoY in 1Q22), according to China Gold Association. Meanwhile, China’s gold consumption fell 16% YoY in 2Q22, driven by the 15% YoY decline in gold jewellery demand, weakened by COVID restrictions. China’s rising gold production might be a negative factor for gold prices, since the country accounts for 9% of global gold output
#gold
📉Russian gold output fell 13.6% YoY in June, with the decline accelerating from 9.0% YoY in May. In 1H22, the country’s gold production was down 6.7% YoY. If Russia’s gold production continues to decline at the June rate, the total output for 2022 might be down ~10% YoY (which would be close to the estimate previously provided by the Union of Gold Producers of Russia). Given that in 2021, Russia accounted for some 9% of global gold mine production, this might slightly support gold prices
🏆China’s gold output rose 17% YoY in 2Q22 (vs. +12% YoY in 1Q22), according to China Gold Association. Meanwhile, China’s gold consumption fell 16% YoY in 2Q22, driven by the 15% YoY decline in gold jewellery demand, weakened by COVID restrictions. China’s rising gold production might be a negative factor for gold prices, since the country accounts for 9% of global gold output
#gold
Morning Bites (part 1)
🏦Global central banks’ net purchases of gold increased to 59t in June, from 33t in May, according to the World Gold Council. The biggest buyer was Iraq, which purchased 34t, while Uzbekistan bought 9t in June (the same as in May), while Turkey’s gold reserves increased 8t in June (vs. 13t of gold purchased in May). It is noteworthy that none of the central banks sold gold in June. The accumulation of gold reserves by central banks might be a positive factor for gold prices. We also note that in 2021, the massive purchases of gold by central banks were triggered by the gold price declining to USD 1,700/oz
#gold
🏦Global central banks’ net purchases of gold increased to 59t in June, from 33t in May, according to the World Gold Council. The biggest buyer was Iraq, which purchased 34t, while Uzbekistan bought 9t in June (the same as in May), while Turkey’s gold reserves increased 8t in June (vs. 13t of gold purchased in May). It is noteworthy that none of the central banks sold gold in June. The accumulation of gold reserves by central banks might be a positive factor for gold prices. We also note that in 2021, the massive purchases of gold by central banks were triggered by the gold price declining to USD 1,700/oz
#gold
Morning Bites (part 2)
🏆Global physical gold demand fell 2% YoY to 956t in 2Q22, with the decline decelerating from 13% YoY in 1Q22, according to the World Gold Council. At the same time, global total gold demand was down 9% YoY in 2Q22 (vs. +34% YoY in 1Q22). The decline in physical gold demand was mostly driven by the 14% YoY drop in the demand from central banks and other institutions. However, the demand for gold jewellery rose 4% YoY in 2Q22, reversing from the 7% YoY decline in 1Q22, on the back of the 49% YoY increase in India’s gold jewellery demand. Meanwhile, gold mine production rose 4% YoY in 2Q22, slightly accelerating from the 2% YoY increase in 1Q22
#gold
🏆Global physical gold demand fell 2% YoY to 956t in 2Q22, with the decline decelerating from 13% YoY in 1Q22, according to the World Gold Council. At the same time, global total gold demand was down 9% YoY in 2Q22 (vs. +34% YoY in 1Q22). The decline in physical gold demand was mostly driven by the 14% YoY drop in the demand from central banks and other institutions. However, the demand for gold jewellery rose 4% YoY in 2Q22, reversing from the 7% YoY decline in 1Q22, on the back of the 49% YoY increase in India’s gold jewellery demand. Meanwhile, gold mine production rose 4% YoY in 2Q22, slightly accelerating from the 2% YoY increase in 1Q22
#gold
Morning Bites
🚘Global EV sales (passenger cars and light-duty vehicles) rose 56% YoY in June, accelerating from the 49% YoY growth in May, according to Rho Motion. These strong dynamics were mostly driven by the acceleration in China’s sales growth to 129% YoY in June (from 105% YoY in May), on the back of new government support measures. Moreover, the growth rate of US & Canada EV sales also accelerated, to 26% YoY in June (from 14% YoY in May). However, EU & UK EV sales fell 6% YoY in June, reversing from the 5% YoY increase in May. The robust growth in global EV sales is supportive for the demand for battery metals (nickel, lithium and cobalt)
#EV #nickel #lithium #cobalt
🚘Global EV sales (passenger cars and light-duty vehicles) rose 56% YoY in June, accelerating from the 49% YoY growth in May, according to Rho Motion. These strong dynamics were mostly driven by the acceleration in China’s sales growth to 129% YoY in June (from 105% YoY in May), on the back of new government support measures. Moreover, the growth rate of US & Canada EV sales also accelerated, to 26% YoY in June (from 14% YoY in May). However, EU & UK EV sales fell 6% YoY in June, reversing from the 5% YoY increase in May. The robust growth in global EV sales is supportive for the demand for battery metals (nickel, lithium and cobalt)
#EV #nickel #lithium #cobalt
Morning Bites
🌏Global manufacturing PMIs slid in July. The US ISM manufacturing PMI declined to 52.8, from 53.0 in June, although it outperformed the Bloomberg consensus estimate of 52.0. The Eurozone Markit Manufacturing PMI fell to 49.8, from 52.1 in June (slightly above the market forecast of 49.6), entering the contraction area for the first time since June 2020. Moreover, China's official PMI decreased to 49.0 (from 50.2 in June), falling short of the consensus estimate of 50.4. Furthermore, China's Caixin manufacturing PMI declined to 50.4 in July, from 51.7 in June (missing the market forecast of 51.5). Below-50 manufacturing PMIs in China and the Eurozone indicate a manufacturing sector contraction in these regions, which supports our negative view on the demand for industrial metals. Meanwhile, even though the US Manufacturing PMI remained above 50, its negative dynamics imply that manufacturing activity in the US is softening
#PMIs
🌏Global manufacturing PMIs slid in July. The US ISM manufacturing PMI declined to 52.8, from 53.0 in June, although it outperformed the Bloomberg consensus estimate of 52.0. The Eurozone Markit Manufacturing PMI fell to 49.8, from 52.1 in June (slightly above the market forecast of 49.6), entering the contraction area for the first time since June 2020. Moreover, China's official PMI decreased to 49.0 (from 50.2 in June), falling short of the consensus estimate of 50.4. Furthermore, China's Caixin manufacturing PMI declined to 50.4 in July, from 51.7 in June (missing the market forecast of 51.5). Below-50 manufacturing PMIs in China and the Eurozone indicate a manufacturing sector contraction in these regions, which supports our negative view on the demand for industrial metals. Meanwhile, even though the US Manufacturing PMI remained above 50, its negative dynamics imply that manufacturing activity in the US is softening
#PMIs
Morning Bites - 2Q22 operating updates from key uranium miners (~53% of global mine supply)
⛏Kazatomprom has reported a 7% YoY decrease in production volumes in 2Q22 due to the lagged impact of COVID on wellfield development in 2021. However, the company has reiterated its 2022 production guidance of 21-22ktU. Meanwhile, sales volumes rose 31% YoY in 2Q22, due to the timing of customer-scheduled deliveries
⛏Cameco has reported 115% YoY production growth in 2Q22. This came from a low base, as operations at Cigar Lake were suspended until April 2021. Cameco reiterated its 2022 production guidance (100% basis) at up to 7.7ktU, with commissioning delays at McArthur River being exactly offset by the successful development work at Cigar Lake
❗️On the demand side, due to the energy crisis, Germany and South Korea (1% and 7% of global U demand, respectively) are considering cancelling their nuclear phase-out plans, which might support the demand for U. Overall, we still see a U market deficit in 2022
#uranium
⛏Kazatomprom has reported a 7% YoY decrease in production volumes in 2Q22 due to the lagged impact of COVID on wellfield development in 2021. However, the company has reiterated its 2022 production guidance of 21-22ktU. Meanwhile, sales volumes rose 31% YoY in 2Q22, due to the timing of customer-scheduled deliveries
⛏Cameco has reported 115% YoY production growth in 2Q22. This came from a low base, as operations at Cigar Lake were suspended until April 2021. Cameco reiterated its 2022 production guidance (100% basis) at up to 7.7ktU, with commissioning delays at McArthur River being exactly offset by the successful development work at Cigar Lake
❗️On the demand side, due to the energy crisis, Germany and South Korea (1% and 7% of global U demand, respectively) are considering cancelling their nuclear phase-out plans, which might support the demand for U. Overall, we still see a U market deficit in 2022
#uranium
⚒Finally, the first shipment of coking coal for thermal purposes
📌As we expected, the abnormal discount of Aus SSCC to Newcastle FOB ($271/t vs. $18/t hist. avg) has led to the substitution of thermal coal to SSCC in el. generation. US Arch Resources has sold a vessel from High-Vol B coking coal to a EU thermal coal utility; US Peabody Energy sees a similar trend
📝In terms of el. generation, SSCC has more calorific value than thermal: while SSCC brands have caloricity of 6,500-7,500 kcal/kg, Newcastle thermal coal benchmark has ~6,000. This means that to substitute 1t of thermal coal, a utility needs 0.8-0.9t of SSCC. HCC, which is even more caloric than SSCC, generally cannot be used in power generation due to its specific qualities
❗️Sales volumes of SSCC to utilities are not meaningful so far, but as the energy crisis in Europe persists and thermal coal remains in deficit, we think that the substituted volumes are to surge in the near term, widely supporting semi-soft coal prices
#coal
📌As we expected, the abnormal discount of Aus SSCC to Newcastle FOB ($271/t vs. $18/t hist. avg) has led to the substitution of thermal coal to SSCC in el. generation. US Arch Resources has sold a vessel from High-Vol B coking coal to a EU thermal coal utility; US Peabody Energy sees a similar trend
📝In terms of el. generation, SSCC has more calorific value than thermal: while SSCC brands have caloricity of 6,500-7,500 kcal/kg, Newcastle thermal coal benchmark has ~6,000. This means that to substitute 1t of thermal coal, a utility needs 0.8-0.9t of SSCC. HCC, which is even more caloric than SSCC, generally cannot be used in power generation due to its specific qualities
❗️Sales volumes of SSCC to utilities are not meaningful so far, but as the energy crisis in Europe persists and thermal coal remains in deficit, we think that the substituted volumes are to surge in the near term, widely supporting semi-soft coal prices
#coal
⚒Who would benefit most from coking coal price growth?
📌We consider 5 companies: Peabody (BTU US), Warrior Met Coal (HCC US), Mongolian Mining Corp. (MMC, 975 HK), Mechel (MTLR RX) and Raspadskaya (RASP RX)
❗️Assuming semi-soft coal quotes catch up with thermal coal, we estimate BTU, MMC, HCC and RASP to trade in the range of -0.3-0.2x 1-y fwd EV/EBITDA, which means that all of them are almost “free”. MMC has a ~240% FCF yield, which is the most attractive of the five
❗️MTLR is a relatively more expensive name due to hefty debt burden. MTLR trades 1.4x 1-y fwd EV/EBITDA with a 135% FCF yield
#coal
📌We consider 5 companies: Peabody (BTU US), Warrior Met Coal (HCC US), Mongolian Mining Corp. (MMC, 975 HK), Mechel (MTLR RX) and Raspadskaya (RASP RX)
❗️Assuming semi-soft coal quotes catch up with thermal coal, we estimate BTU, MMC, HCC and RASP to trade in the range of -0.3-0.2x 1-y fwd EV/EBITDA, which means that all of them are almost “free”. MMC has a ~240% FCF yield, which is the most attractive of the five
❗️MTLR is a relatively more expensive name due to hefty debt burden. MTLR trades 1.4x 1-y fwd EV/EBITDA with a 135% FCF yield
#coal
Morning Bites
🚘US light vehicle sales continued to decline in July: -12% YoY vs. -14% YoY in June. Seasonally-adjusted sales volumes fell 10% YoY in July, after the 15% YoY contraction in June. The two major reasons for the weakening car sales were the global shortage of automotive parts and inflationary pressures. The continuing decline in car sales is negative for PGM demand
💍The growth rate of Hong Kong jewellery & watch sales decelerated to 2% YoY in July, from 8% YoY in June. According to a HK government spokesperson, one of the reasons for the softer growth of retail sales was the climbing number of COVID-19 cases in HK. We note, however, that in August, the HK government plans to disburse the second set of stimulus vouchers, which might support jewellery sales in the country. The first tranche of the government support triggered a 14% YoY increase in jewellery sales in April, after the 36% YoY decline in March
#cars #diamonds
🚘US light vehicle sales continued to decline in July: -12% YoY vs. -14% YoY in June. Seasonally-adjusted sales volumes fell 10% YoY in July, after the 15% YoY contraction in June. The two major reasons for the weakening car sales were the global shortage of automotive parts and inflationary pressures. The continuing decline in car sales is negative for PGM demand
💍The growth rate of Hong Kong jewellery & watch sales decelerated to 2% YoY in July, from 8% YoY in June. According to a HK government spokesperson, one of the reasons for the softer growth of retail sales was the climbing number of COVID-19 cases in HK. We note, however, that in August, the HK government plans to disburse the second set of stimulus vouchers, which might support jewellery sales in the country. The first tranche of the government support triggered a 14% YoY increase in jewellery sales in April, after the 36% YoY decline in March
#cars #diamonds
Morning Bites (part 1)
🌡France is likely to extend the cuts to nuclear power generation due to high water temperatures, Bloomberg reports. Under French regulations, if river temperatures reach certain thresholds, nuclear plants must operate at reduced capacity, or be halted, in order to ensure that the water used for cooling does not harm the environment once it is put back into the river. Moreover, as we wrote before, French nuclear power generation is currently constrained by maintenance works and corrosion issues at some reactors. As a result, only 49% of the country’s nuclear capacity is currently in operation, according to Bloomberg. Reduced nuclear power generation in France is negative for uranium demand, given the country accounts for 13% of global uranium requirements. This might also support the demand for coal, as thermal power could be used to offset the lost nuclear capacity
#uranium #coal
🌡France is likely to extend the cuts to nuclear power generation due to high water temperatures, Bloomberg reports. Under French regulations, if river temperatures reach certain thresholds, nuclear plants must operate at reduced capacity, or be halted, in order to ensure that the water used for cooling does not harm the environment once it is put back into the river. Moreover, as we wrote before, French nuclear power generation is currently constrained by maintenance works and corrosion issues at some reactors. As a result, only 49% of the country’s nuclear capacity is currently in operation, according to Bloomberg. Reduced nuclear power generation in France is negative for uranium demand, given the country accounts for 13% of global uranium requirements. This might also support the demand for coal, as thermal power could be used to offset the lost nuclear capacity
#uranium #coal
Morning Bites (part 2)
📉CISA mills daily crude steel output fell 7.3% in late July from the second ten days of the month, reaching the lowest level since late November 2021. This represented a 10.3% YoY drop (vs. -7.1% YoY in mid-July). The continued decline in steel production might have been caused by the subdued demand and the high level of steel inventories, which were up 20.1% YoY as of 31 July. However, inventories decreased 12.8% from 20 to 31 July
🪨Russia's coal output fell 1% YoY in 1H22 (up 1 % YoY in June), according to Metal Expert. The half-year dynamics were roughly in line with our estimate. Thermal coal production was down 2% YoY, while coking coal output rose 4% YoY, in 1H22. Total coal sales (export + domestic) were roughly flat YoY in 1H22 and decreased 4% YoY in June. Total coal exports were flat YoY in 1H22 and fell 2% YoY in June, while domestic sales were up 2% YoY in 1H22 and down 7% YoY in June
#steel #coal
📉CISA mills daily crude steel output fell 7.3% in late July from the second ten days of the month, reaching the lowest level since late November 2021. This represented a 10.3% YoY drop (vs. -7.1% YoY in mid-July). The continued decline in steel production might have been caused by the subdued demand and the high level of steel inventories, which were up 20.1% YoY as of 31 July. However, inventories decreased 12.8% from 20 to 31 July
🪨Russia's coal output fell 1% YoY in 1H22 (up 1 % YoY in June), according to Metal Expert. The half-year dynamics were roughly in line with our estimate. Thermal coal production was down 2% YoY, while coking coal output rose 4% YoY, in 1H22. Total coal sales (export + domestic) were roughly flat YoY in 1H22 and decreased 4% YoY in June. Total coal exports were flat YoY in 1H22 and fell 2% YoY in June, while domestic sales were up 2% YoY in 1H22 and down 7% YoY in June
#steel #coal
🗞China has published preliminary import/export statistics for July. See preliminary data in the table above
#statistics #China
#statistics #China