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
👍1
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
👍1
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
👍1
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
👍2
PGMs markets update
📉In 2022, the PGM supply from South Africa (1 of the 2 main producing countries) was pressured by power cuts and labour shortages. We expect Pt and Pd supply from SA to fall 13% and 16% YoY in 2022, respectively. Supply from Russia, however, is set to remain relatively stable (flat YoY for Pt and -4% YoY for Pd in 2022), with Nornickel confirming its FY22 guidance. Overall, we see Pd and Pt supply shrinking 9-10% YoY in 2022
🚘On the demand side, the main PGM-requiring sector, autocatalyst manufacture, suffered from the weak car production in the EU and US. We see autocatalyst demand reducing 5-12% for Pd and Pt in 2022 (with the Pt decline sharper, as we expect a rebound in Pd's share in Chinese autos to 90%, from 85% in 2021), driving a total demand reduction of 5% and 4%, respectively
❗️As such, the Pt market is likely to remain in a solid surplus of ~0.9mnoz in 2022 (vs. 1.3mnoz in 2021), while the Pd market is to move to a deficit of 80koz (vs. the ~250koz surplus in 2021)
#PGMs
📉In 2022, the PGM supply from South Africa (1 of the 2 main producing countries) was pressured by power cuts and labour shortages. We expect Pt and Pd supply from SA to fall 13% and 16% YoY in 2022, respectively. Supply from Russia, however, is set to remain relatively stable (flat YoY for Pt and -4% YoY for Pd in 2022), with Nornickel confirming its FY22 guidance. Overall, we see Pd and Pt supply shrinking 9-10% YoY in 2022
🚘On the demand side, the main PGM-requiring sector, autocatalyst manufacture, suffered from the weak car production in the EU and US. We see autocatalyst demand reducing 5-12% for Pd and Pt in 2022 (with the Pt decline sharper, as we expect a rebound in Pd's share in Chinese autos to 90%, from 85% in 2021), driving a total demand reduction of 5% and 4%, respectively
❗️As such, the Pt market is likely to remain in a solid surplus of ~0.9mnoz in 2022 (vs. 1.3mnoz in 2021), while the Pd market is to move to a deficit of 80koz (vs. the ~250koz surplus in 2021)
#PGMs
👍1
Where is the level of costs support for PGM prices?
❗At spot, PGM basket prices remain ~20% above the AISC of marginal producers, on our numbers
📉As the Pt market remains in a hefty surplus, we expect the pressure on the PGM basket to persist: the prices of metals in it are likely to decline ~20% from spot levels in order to receive support from costs. In our next post, we provide a valuation of PGM miners
#PGMs
❗At spot, PGM basket prices remain ~20% above the AISC of marginal producers, on our numbers
📉As the Pt market remains in a hefty surplus, we expect the pressure on the PGM basket to persist: the prices of metals in it are likely to decline ~20% from spot levels in order to receive support from costs. In our next post, we provide a valuation of PGM miners
#PGMs
👍1
How do PGM producers look?
📉Given the weakening demand for PGMs (especially for platinum), PGM miners are generally not particularly appealing
💰On spot prices, smaller PGM miners still look attractive, trading at 1-2x 1-y fwd EV/EBITDA with a 13-25% FCF yield. However, Norilsk Nickel looks overvalued already, trading at 7x EV/EBITDA
💰Assuming a 20% downward correction in the PGM basket price from spot - the level at which prices would get cost support - the multiples would be considerably higher. The largest producers would trade at 7-8x EV/EBITDA. Meanwhile, Sibanye-Stillwater would remain relatively cheap, with 3.0х EV/EBITDA, an 11% FCF yield and an 8% dividend yield. Meanwhile, a smaller miner, Sylvania Platinum, would still seem attractive, trading at 1.4x EV/EBITDA
#PGMs
📉Given the weakening demand for PGMs (especially for platinum), PGM miners are generally not particularly appealing
💰On spot prices, smaller PGM miners still look attractive, trading at 1-2x 1-y fwd EV/EBITDA with a 13-25% FCF yield. However, Norilsk Nickel looks overvalued already, trading at 7x EV/EBITDA
💰Assuming a 20% downward correction in the PGM basket price from spot - the level at which prices would get cost support - the multiples would be considerably higher. The largest producers would trade at 7-8x EV/EBITDA. Meanwhile, Sibanye-Stillwater would remain relatively cheap, with 3.0х EV/EBITDA, an 11% FCF yield and an 8% dividend yield. Meanwhile, a smaller miner, Sylvania Platinum, would still seem attractive, trading at 1.4x EV/EBITDA
#PGMs
👍1
Morning Bites
📉China’s ROM iron ore output fell 3.5% YoY in July, reversing from the 9.2% YoY growth in June. The decrease in iron ore production might have been caused by the subdued demand from steel producers. As we wrote before, China’s crude steel output dropped 6.4% YoY in July, with the decline rate accelerating from the 3.3% YoY in June. In early August, the average daily steel output then recovered slightly from the late-July level, but was still 4.7% YoY lower. We note that in the coming months, the demand for iron ore might remain depressed, since China’s weak aggregate financing data suggests that the recovery of the country’s economy (and, hence, of the demand for steel) might be difficult
#iron_ore
📉China’s ROM iron ore output fell 3.5% YoY in July, reversing from the 9.2% YoY growth in June. The decrease in iron ore production might have been caused by the subdued demand from steel producers. As we wrote before, China’s crude steel output dropped 6.4% YoY in July, with the decline rate accelerating from the 3.3% YoY in June. In early August, the average daily steel output then recovered slightly from the late-July level, but was still 4.7% YoY lower. We note that in the coming months, the demand for iron ore might remain depressed, since China’s weak aggregate financing data suggests that the recovery of the country’s economy (and, hence, of the demand for steel) might be difficult
#iron_ore
👍2
Morning Bites
☢️Kazatomprom plans to increase uranium production by 10% in 2024 relative to the 2023 target. According to its recently released guidance, the company intends to produce 25,000-25,500tU (100% basis) in 2024, which is 2,000-3,000tU more that its plan for 2023. The increase is motivated by the company’s bullish outlook on the nuclear power sector. Given the increase accounts for ~5% of the global uranium mine supply, this might be a negative factor for uranium prices in the medium term
📌We note that in 2021 and 2020, the company produced 24% and 32% less than the subsoil agreement volume (28,691tU), respectively, while the newly announced 2024 production target is only ~10% below this level
📌As we noted previously, in 1H22 the company produced 10,070tU (100% basis), having completed ~48% of its full-year production guidance for 2022
#uranium
☢️Kazatomprom plans to increase uranium production by 10% in 2024 relative to the 2023 target. According to its recently released guidance, the company intends to produce 25,000-25,500tU (100% basis) in 2024, which is 2,000-3,000tU more that its plan for 2023. The increase is motivated by the company’s bullish outlook on the nuclear power sector. Given the increase accounts for ~5% of the global uranium mine supply, this might be a negative factor for uranium prices in the medium term
📌We note that in 2021 and 2020, the company produced 24% and 32% less than the subsoil agreement volume (28,691tU), respectively, while the newly announced 2024 production target is only ~10% below this level
📌As we noted previously, in 1H22 the company produced 10,070tU (100% basis), having completed ~48% of its full-year production guidance for 2022
#uranium
👍2
Morning Bites (part 1)
📉Global crude steel output fell 6.5% YoY to 149mnt in July, accelerating from the 5.9% YoY in June, according to the World Steel Association. The decline in China's steel output deepened to 6.4% YoY in July, from 3.3% YoY in June. In July, China accounted for 55% of world steel production (vs. 57% in June). Meanwhile, ex-China steel production was down 6.6% YoY in July (vs. -9.2% YoY in June). The decline rate of EU steel output decelerated to 6.7% YoY in July, from 12.2% YoY in June, while US steel production contracted 6.4% YoY in July (vs. -4.2% YoY in June). However, the decline in Russia’s steel output slowed to 13.2% YoY in July, from 22.2% YoY in June
❗️We note that steel production is a leading indicator of global economic activity. We keep a negative outlook on global steel output over the coming months due to the global economic slowdown and difficulties in China’s economic recovery
#steel
📉Global crude steel output fell 6.5% YoY to 149mnt in July, accelerating from the 5.9% YoY in June, according to the World Steel Association. The decline in China's steel output deepened to 6.4% YoY in July, from 3.3% YoY in June. In July, China accounted for 55% of world steel production (vs. 57% in June). Meanwhile, ex-China steel production was down 6.6% YoY in July (vs. -9.2% YoY in June). The decline rate of EU steel output decelerated to 6.7% YoY in July, from 12.2% YoY in June, while US steel production contracted 6.4% YoY in July (vs. -4.2% YoY in June). However, the decline in Russia’s steel output slowed to 13.2% YoY in July, from 22.2% YoY in June
❗️We note that steel production is a leading indicator of global economic activity. We keep a negative outlook on global steel output over the coming months due to the global economic slowdown and difficulties in China’s economic recovery
#steel
👍2
Morning Bites (part 2)
🪨China’s coking coal imports rose 62% YoY in July, after the 21% YoY increase in June. The growth was mainly driven by the 457% YoY increase in imports from Mongolia (45% of total imports), due to easing logistical constraints at the Mongolian border. Meanwhile, coking coal imports from Russia (33% of the total) rose 63% YoY in July. We note that, due to the shortage of thermal coal, some utilities are adding coking coal to the thermal coal mix. In our view, the increased demand for coking coal from utilities might have been one of the factors that contributed to the growth of China’s metallurgical coal imports
#coal
🪨China’s coking coal imports rose 62% YoY in July, after the 21% YoY increase in June. The growth was mainly driven by the 457% YoY increase in imports from Mongolia (45% of total imports), due to easing logistical constraints at the Mongolian border. Meanwhile, coking coal imports from Russia (33% of the total) rose 63% YoY in July. We note that, due to the shortage of thermal coal, some utilities are adding coking coal to the thermal coal mix. In our view, the increased demand for coking coal from utilities might have been one of the factors that contributed to the growth of China’s metallurgical coal imports
#coal
👍2
Morning Bites
📉CISA mills daily crude steel output increased 2.7% in mid-August from the first ten days of the month. However, this represented a 6.7% YoY drop (vs. -4.7% YoY in early August). The slight WoW production recovery was not supported by steel demand, as steel inventories rose 1.6% between 10 and 20 August, and were up 16.1% YoY as of 20 August. We keep a negative outlook on China’s steel production given the weak construction activity and difficulties in the post-lockdown recovery
☢️Japan might restart some of its idled nuclear reactors to stabilise energy supply, the country’s Prime Minister said. Japan has 33 operable reactors, of which only 10 received regulatory approvals after the Fukushima accident in 2011. According to Reuters, as of June, 3 of the 10 operating reactors were offline due to maintenance. The 23 stopped reactors might require ~3.2ktU (or 4-5% of global uranium demand), so restarting some of them might support the demand for uranium
#steel #uranium
📉CISA mills daily crude steel output increased 2.7% in mid-August from the first ten days of the month. However, this represented a 6.7% YoY drop (vs. -4.7% YoY in early August). The slight WoW production recovery was not supported by steel demand, as steel inventories rose 1.6% between 10 and 20 August, and were up 16.1% YoY as of 20 August. We keep a negative outlook on China’s steel production given the weak construction activity and difficulties in the post-lockdown recovery
☢️Japan might restart some of its idled nuclear reactors to stabilise energy supply, the country’s Prime Minister said. Japan has 33 operable reactors, of which only 10 received regulatory approvals after the Fukushima accident in 2011. According to Reuters, as of June, 3 of the 10 operating reactors were offline due to maintenance. The 23 stopped reactors might require ~3.2ktU (or 4-5% of global uranium demand), so restarting some of them might support the demand for uranium
#steel #uranium
👍1
Morning Bites
📉China’s nickel pig iron (NPI) output fell 25% YoY in July, with the rate of decline accelerating from 8% YoY in June. The contraction was caused by the subdued demand from stainless steel mills. China’s stainless steel production has been falling for four consecutive months, with the decline deepening to 12% YoY in July from 7% YoY in June. According to industry reports, there are currently no signs of a recovery in China’s demand for stainless steel, therefore stainless mills might keep output levels low in August. Moreover, industry reports state that some Chinese NPI producers are close to breakeven or are incurring losses, which might lead to further production cuts in August. Overall, this might be a negative factor for nickel demand
#nickel
📉China’s nickel pig iron (NPI) output fell 25% YoY in July, with the rate of decline accelerating from 8% YoY in June. The contraction was caused by the subdued demand from stainless steel mills. China’s stainless steel production has been falling for four consecutive months, with the decline deepening to 12% YoY in July from 7% YoY in June. According to industry reports, there are currently no signs of a recovery in China’s demand for stainless steel, therefore stainless mills might keep output levels low in August. Moreover, industry reports state that some Chinese NPI producers are close to breakeven or are incurring losses, which might lead to further production cuts in August. Overall, this might be a negative factor for nickel demand
#nickel
👍1
Morning Bites
⚡️Europe has lost 50% of its aluminium smelting capacity within the past year due to the energy crisis, Bloomberg reports. This might account for ~6% of global primary supply. Speira GmbH is one of the recent energy crisis victims. The firm is considering cutting production at its aluminium smelter in Germany by 80kt/a (1% of EU output). As we wrote before, output cuts are also spread across some plants in China and the US. Over the last year, the total lost capacity might have reached ~8% of global supply, which might be positive for aluminium prices
📉Chile’s Codelco has lowered its 2022 copper production guidance 7% to 1.49-1.51mnt. According to the firm, the decrease was caused by lower grades and recovery rates at some mines. Given that the reduction accounts for 2% of Chile’s mine copper production (or 0.5% of global), this might be a slightly positive factor for copper prices. However, we keep a negative outlook on copper demand due to the global economic slowdown
#aluminium #copper
⚡️Europe has lost 50% of its aluminium smelting capacity within the past year due to the energy crisis, Bloomberg reports. This might account for ~6% of global primary supply. Speira GmbH is one of the recent energy crisis victims. The firm is considering cutting production at its aluminium smelter in Germany by 80kt/a (1% of EU output). As we wrote before, output cuts are also spread across some plants in China and the US. Over the last year, the total lost capacity might have reached ~8% of global supply, which might be positive for aluminium prices
📉Chile’s Codelco has lowered its 2022 copper production guidance 7% to 1.49-1.51mnt. According to the firm, the decrease was caused by lower grades and recovery rates at some mines. Given that the reduction accounts for 2% of Chile’s mine copper production (or 0.5% of global), this might be a slightly positive factor for copper prices. However, we keep a negative outlook on copper demand due to the global economic slowdown
#aluminium #copper
👍2
Morning Bites
🔗ArcelorMittal has announced a 6% increase in Europe’s HRC prices for October-November, Metal Expert reports. The company is offering HRC for USD 800-850/t. The announced price is ~9% above the current benchmark price. According to industry sources, the increase was caused by growing energy costs and a hike in the CO2 price. We note that in late August, EU domestic HRC prices fell 17% MoM and were down 27% YTD
#steel
🔗ArcelorMittal has announced a 6% increase in Europe’s HRC prices for October-November, Metal Expert reports. The company is offering HRC for USD 800-850/t. The announced price is ~9% above the current benchmark price. According to industry sources, the increase was caused by growing energy costs and a hike in the CO2 price. We note that in late August, EU domestic HRC prices fell 17% MoM and were down 27% YTD
#steel
👍1
Morning Bites (part 1)
⚡️Alcoa plans to curtail 1/3 of production capacity at Lista aluminium smelter in Norway to mitigate high energy costs for the site. The capacity reduction will amount to 31kt/a (0.4% of Europe’s primary aluminium production). We have previously noted that Europe has lost 50% of its aluminium capacity over the past year, while the global capacity reduction might have reached 8% of aluminium supply. This could be a positive factor for aluminium prices
✂️China’s steelmaking city Tangshan is targeting a 6% YoY steel output cut in 2022, according to industry sources. In 7mo22, steel production in Tangshan rose 1% YoY, so during the remainder of 2022 the city will have to reduce steel output 15% YoY to achieve the target. In 2022, the overall production curtailment in Tangshan might reach 1% of China’s 2021 steel output (Tangshan accounts for 13% of China’s steel production). As we wrote earlier, in July, China’s steel output fell 6% YoY (-6% YoY in 7mo22)
#aluminium #steel
⚡️Alcoa plans to curtail 1/3 of production capacity at Lista aluminium smelter in Norway to mitigate high energy costs for the site. The capacity reduction will amount to 31kt/a (0.4% of Europe’s primary aluminium production). We have previously noted that Europe has lost 50% of its aluminium capacity over the past year, while the global capacity reduction might have reached 8% of aluminium supply. This could be a positive factor for aluminium prices
✂️China’s steelmaking city Tangshan is targeting a 6% YoY steel output cut in 2022, according to industry sources. In 7mo22, steel production in Tangshan rose 1% YoY, so during the remainder of 2022 the city will have to reduce steel output 15% YoY to achieve the target. In 2022, the overall production curtailment in Tangshan might reach 1% of China’s 2021 steel output (Tangshan accounts for 13% of China’s steel production). As we wrote earlier, in July, China’s steel output fell 6% YoY (-6% YoY in 7mo22)
#aluminium #steel
👍1