🥇What's happening with gold producer costs?
📈Propelled by inflation, the marginal costs of global gold producers have increased 15% YoY in 1Q22. Based on 2Q22 financial reports so far, we see a further >10% QoQ increase in costs
📉As global marginal costs are already close to $2,000/oz, 10-20% of global gold mining assets have negative operating margins already (compared with the average 10-20% historical margin of the marginal producer)
📌Soaring production costs are likely to be the main supporting factor for gold prices in the medium term. If inflationary pressure persists, the gold price might catch up with marginal costs and then grow further to restore the marginal producer’s premium
#gold
📈Propelled by inflation, the marginal costs of global gold producers have increased 15% YoY in 1Q22. Based on 2Q22 financial reports so far, we see a further >10% QoQ increase in costs
📉As global marginal costs are already close to $2,000/oz, 10-20% of global gold mining assets have negative operating margins already (compared with the average 10-20% historical margin of the marginal producer)
📌Soaring production costs are likely to be the main supporting factor for gold prices in the medium term. If inflationary pressure persists, the gold price might catch up with marginal costs and then grow further to restore the marginal producer’s premium
#gold
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🏆Which gold producers are worth looking at?
💰After the derating in gold which has occurred over the last several months (the multiples of most major producers have slumped ~15-40% vs. their April-May levels), and ahead of a potential upward correction in gold, most global producers look interesting at spot
💰Among the majors, Kinross and Newcrest look the most appealing. On spot prices, Kinross trades at 3.3x 1-y fwd EV/EBITDA, a 15% FCF yield and a 6% dividend and buyback yield. Meanwhile, Newcrest offers a 3.9x 1-y fwd EV/EBITDA, 7% FCF yield and 2% dividend and buyback yield
💰Newmont and Barrick, the two major names in the gold industry, are also worth considering, even though they are a bit more expensive. The two companies currently trade at 6.0-7.2x EV/EBITDA, with a 5-6% FCF yield and a 3-5% dividend yield
📌Meanwhile, Fresnillo appears too expensive, at 7.7x EV/EBITDA, which makes it less attractive than its peers
#gold
💰After the derating in gold which has occurred over the last several months (the multiples of most major producers have slumped ~15-40% vs. their April-May levels), and ahead of a potential upward correction in gold, most global producers look interesting at spot
💰Among the majors, Kinross and Newcrest look the most appealing. On spot prices, Kinross trades at 3.3x 1-y fwd EV/EBITDA, a 15% FCF yield and a 6% dividend and buyback yield. Meanwhile, Newcrest offers a 3.9x 1-y fwd EV/EBITDA, 7% FCF yield and 2% dividend and buyback yield
💰Newmont and Barrick, the two major names in the gold industry, are also worth considering, even though they are a bit more expensive. The two companies currently trade at 6.0-7.2x EV/EBITDA, with a 5-6% FCF yield and a 3-5% dividend yield
📌Meanwhile, Fresnillo appears too expensive, at 7.7x EV/EBITDA, which makes it less attractive than its peers
#gold
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Morning Bites
💍US jewellery and watch sales were up 0.8% YoY in June (vs. the revised 5.1% YoY increase in May), according to data from the US Department of Commerce. This was the weakest growth rate since May 2020. As we have noted before, soaring inflation negatively affects jewellery sales. This worsens the outlook for diamond demand
🇿🇦South Africa’s PGM mining production fell 10% YoY in June (vs. +4% YoY in May). At the same time, the country’s gold output fell 29% YoY in June (vs. -28% YoY in May). According to industry sources, the main reasons for the decline in South Africa’s mining output were persistent power cuts, growing production costs, labour shortages and supply chain disruptions. Given that South Africa accounts for some 70% and 34% of Pd and Pt supply, respectively, and for 3% of global gold production, the decline in output might be a slightly positive factor for PGM and gold prices
#diamonds #PGMs #gold
💍US jewellery and watch sales were up 0.8% YoY in June (vs. the revised 5.1% YoY increase in May), according to data from the US Department of Commerce. This was the weakest growth rate since May 2020. As we have noted before, soaring inflation negatively affects jewellery sales. This worsens the outlook for diamond demand
🇿🇦South Africa’s PGM mining production fell 10% YoY in June (vs. +4% YoY in May). At the same time, the country’s gold output fell 29% YoY in June (vs. -28% YoY in May). According to industry sources, the main reasons for the decline in South Africa’s mining output were persistent power cuts, growing production costs, labour shortages and supply chain disruptions. Given that South Africa accounts for some 70% and 34% of Pd and Pt supply, respectively, and for 3% of global gold production, the decline in output might be a slightly positive factor for PGM and gold prices
#diamonds #PGMs #gold
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🗞Today, China has published its industrial production data for July (see the table above)
#statistics #China
#statistics #China
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Morning Bites (part 1)
📌China’s crude steel output fell 6.4% YoY in July (vs. -3.3% YoY in June). This deepening decline was mostly driven by weak domestic demand: China’s apparent steel consumption was down 8% YoY in July (vs. -5% YoY in June), due to weak manufacturing activity and the depressed construction sector
🏢China property sales fell 29% YoY in July (vs. -18% YoY in June). Moreover, floor space starts decreased 45% YoY in July (the same as in June). Meanwhile, property completions declined 36% YoY in July (vs. -41% YoY in June). At the same time, the rate of decline in China’s personal mortgage loans accelerated slightly to 23% YoY in July, from 20% YoY in June. The continued weakening of China’s property sector is a negative factor for the demand for industrial metals
#China #steel #aluminium #copper
📌China’s crude steel output fell 6.4% YoY in July (vs. -3.3% YoY in June). This deepening decline was mostly driven by weak domestic demand: China’s apparent steel consumption was down 8% YoY in July (vs. -5% YoY in June), due to weak manufacturing activity and the depressed construction sector
🏢China property sales fell 29% YoY in July (vs. -18% YoY in June). Moreover, floor space starts decreased 45% YoY in July (the same as in June). Meanwhile, property completions declined 36% YoY in July (vs. -41% YoY in June). At the same time, the rate of decline in China’s personal mortgage loans accelerated slightly to 23% YoY in July, from 20% YoY in June. The continued weakening of China’s property sector is a negative factor for the demand for industrial metals
#China #steel #aluminium #copper
Morning Bites (part 2)
⚡️China’s thermal power generation rose 5% YoY in July, reversing from the 6% YoY decline in June. Meanwhile, total electricity generation was up 5% YoY in July (vs. +2% YoY in June). The recovery of China’s thermal power generation is supportive for coal demand
🪨China’s coal production was up 16% YoY in July, which was slightly more than the 15% YoY growth in June. The increase might have been caused by China’s intention to ensure sufficient domestic coal supplies. However, as we have written before, China’s miners are switching to lower-quality coal, as the domestic price cap is well below the spot price. The lower caloricity results in higher coal consumption by some utilities in China
#coal
⚡️China’s thermal power generation rose 5% YoY in July, reversing from the 6% YoY decline in June. Meanwhile, total electricity generation was up 5% YoY in July (vs. +2% YoY in June). The recovery of China’s thermal power generation is supportive for coal demand
🪨China’s coal production was up 16% YoY in July, which was slightly more than the 15% YoY growth in June. The increase might have been caused by China’s intention to ensure sufficient domestic coal supplies. However, as we have written before, China’s miners are switching to lower-quality coal, as the domestic price cap is well below the spot price. The lower caloricity results in higher coal consumption by some utilities in China
#coal
Morning Bites (part 3)
📌The growth rate of China’s new internal combustion engine car sales accelerated to 15% YoY in July, from 8% YoY in June. The revival of China’s car sales might have been driven by the implementation of government support measures. Given that the country’s automotive sector accounts for some 26% and 17% of global autocatalyst Pd and Pt demand, respectively, this might be a positive factor for PGM demand
📌China’s new EV sales were up 117% YoY in July (vs. +129% YoY in June). As with ICE cars, government support measures contributed to the growth in EV sales. Robust EV sales in China are 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
📌The growth rate of China’s new internal combustion engine car sales accelerated to 15% YoY in July, from 8% YoY in June. The revival of China’s car sales might have been driven by the implementation of government support measures. Given that the country’s automotive sector accounts for some 26% and 17% of global autocatalyst Pd and Pt demand, respectively, this might be a positive factor for PGM demand
📌China’s new EV sales were up 117% YoY in July (vs. +129% YoY in June). As with ICE cars, government support measures contributed to the growth in EV sales. Robust EV sales in China are 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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Morning Bites (part 1)
📈Severstal has announced a 6% increase in the domestic HRC price for September to RUB 44.9k/t (USD 732/t) excluding tax, Metal Expert reports. According to Metal Expert, the company had already contracted 50% of its September production volumes, which motivated the price rise. We note that, given the price hike, the domestic premium might widen to USD 180/t, from the current USD 139/t (other things being equal). We also note that in the middle of August, Severstal and NLMK already raised their HRC prices for traders 2-3%
#steel #rusteel
📈Severstal has announced a 6% increase in the domestic HRC price for September to RUB 44.9k/t (USD 732/t) excluding tax, Metal Expert reports. According to Metal Expert, the company had already contracted 50% of its September production volumes, which motivated the price rise. We note that, given the price hike, the domestic premium might widen to USD 180/t, from the current USD 139/t (other things being equal). We also note that in the middle of August, Severstal and NLMK already raised their HRC prices for traders 2-3%
#steel #rusteel
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Morning Bites (part 2)
📉CISA mills daily crude steel output increased 2.8% in early August from the last ten days of July. However, this was a drop of 4.7% YoY (vs. -10.3% YoY in late July). We note that the increase was from a low base, as in late July the average daily output reached its lowest level since late November 2021. It seems that this slight recovery in steel production was not supported by the steel demand, given that steel inventories increased 2.7% from 31 July to 10 August and were up 16.6% YoY as of 10 August
#steel
📉CISA mills daily crude steel output increased 2.8% in early August from the last ten days of July. However, this was a drop of 4.7% YoY (vs. -10.3% YoY in late July). We note that the increase was from a low base, as in late July the average daily output reached its lowest level since late November 2021. It seems that this slight recovery in steel production was not supported by the steel demand, given that steel inventories increased 2.7% from 31 July to 10 August and were up 16.6% YoY as of 10 August
#steel
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Morning Bites (part 1)
📉China’s aggregate financing contracted 29% YoY in July, missing the consensus estimate by 42%. Traditional bank loans dropped 37% YoY, underperforming the market forecast by 38%. According to Bloomberg, banks struggled to boost lending due to subdued aggregate demand and weak sentiment in the property sector. According to some economists, quoted by Bloomberg, such data might be a sign of a liquidity trap, which implies that the central bank is failing to spur lending in the economy via low interest rates. This might postpone the recovery of China’s economy, which would ultimately be negative for the demand for industrial metals
#China #global
📉China’s aggregate financing contracted 29% YoY in July, missing the consensus estimate by 42%. Traditional bank loans dropped 37% YoY, underperforming the market forecast by 38%. According to Bloomberg, banks struggled to boost lending due to subdued aggregate demand and weak sentiment in the property sector. According to some economists, quoted by Bloomberg, such data might be a sign of a liquidity trap, which implies that the central bank is failing to spur lending in the economy via low interest rates. This might postpone the recovery of China’s economy, which would ultimately be negative for the demand for industrial metals
#China #global
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Morning Bites (part 2)
⛏Nyrstar has decided to place the Budel zinc smelter in Netherlands on care and maintenance from 1 September until further notice. The decision was made amid surging energy costs in Europe. The LME zinc price subsequently jumped 7% on 16 August. We note that the smelter’s capacity accounts for roughly 2% of global refined zinc production
#zinc
⛏Nyrstar has decided to place the Budel zinc smelter in Netherlands on care and maintenance from 1 September until further notice. The decision was made amid surging energy costs in Europe. The LME zinc price subsequently jumped 7% on 16 August. We note that the smelter’s capacity accounts for roughly 2% of global refined zinc production
#zinc
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Morning Bites (part 1)
💍China’s jewellery and watch retail sales jumped 22.1% YoY in July (vs. +8.1% YoY in June). The increase might have been driven by behavioural reasons or by purchases which were postponed during the lockdowns. The growth of China’s jewellery sales is a positive factor for diamond demand. We note, however, that China’s total retail sales of consumer goods were up only 2.7% YoY in July, missing market estimates of +5% YoY and slightly slowing from the +3.1% YoY in June
#diamonds
💍China’s jewellery and watch retail sales jumped 22.1% YoY in July (vs. +8.1% YoY in June). The increase might have been driven by behavioural reasons or by purchases which were postponed during the lockdowns. The growth of China’s jewellery sales is a positive factor for diamond demand. We note, however, that China’s total retail sales of consumer goods were up only 2.7% YoY in July, missing market estimates of +5% YoY and slightly slowing from the +3.1% YoY in June
#diamonds
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Morning Bites (part 2)
⛏Norsk Hydro plans to halt primary aluminium production at its Slovalco smelter in Slovakia by the end of September due to rising energy costs. The smelter’s capacity accounts for 2% of Europe’s primary aluminium output (0.3% of global). We note that due to soaring electricity costs there is a risk of further smelter stoppages in Europe, which might be a positive factor for aluminium prices, given Europe accounts for 12% of global primary aluminium production. According to industry reports, power shortages also led to smelter stoppages in China, with 460kt/a being shut down. In addition, roughly 500kt/a were stopped in the US for the same reasons. This brings the total closing capacity to more than 1,700kt/a (~3% of global supply)
#aluminium
⛏Norsk Hydro plans to halt primary aluminium production at its Slovalco smelter in Slovakia by the end of September due to rising energy costs. The smelter’s capacity accounts for 2% of Europe’s primary aluminium output (0.3% of global). We note that due to soaring electricity costs there is a risk of further smelter stoppages in Europe, which might be a positive factor for aluminium prices, given Europe accounts for 12% of global primary aluminium production. According to industry reports, power shortages also led to smelter stoppages in China, with 460kt/a being shut down. In addition, roughly 500kt/a were stopped in the US for the same reasons. This brings the total closing capacity to more than 1,700kt/a (~3% of global supply)
#aluminium
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Morning Bites
💎India’s rough diamond net imports rose 27% YoY in July (vs. +4% YoY in June). Meanwhile, the decline rate of India’s polished diamond net exports accelerated to 16% YoY in July, from 1% YoY in June. The deepening decline in polished net exports might signal weakening downstream diamond demand. In particular, as we wrote before, the dynamics of US jewellery sales slowed significantly in June. Meanwhile, India’s lab-grown rough diamond net imports rose 21% YoY in July (vs. +45% YoY in June). The share of lab-grown net rough imports in natural diamond imports decreased to 7% in July, from 8% in June
#diamonds
💎India’s rough diamond net imports rose 27% YoY in July (vs. +4% YoY in June). Meanwhile, the decline rate of India’s polished diamond net exports accelerated to 16% YoY in July, from 1% YoY in June. The deepening decline in polished net exports might signal weakening downstream diamond demand. In particular, as we wrote before, the dynamics of US jewellery sales slowed significantly in June. Meanwhile, India’s lab-grown rough diamond net imports rose 21% YoY in July (vs. +45% YoY in June). The share of lab-grown net rough imports in natural diamond imports decreased to 7% in July, from 8% in June
#diamonds
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