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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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Morning Bites (part 2)
💎De Beers has reported sales of USD 630mn at its 7th cycle in 2022. This was 11% above the historical average and also 21% higher YoY (vs. +24% YoY at the 6th cycle in 2022). However, according to De Beers CEO Bruce Cleaver, sales in the next few cycles might be negatively affected by the temporary closures of polishing factories in India (90% of global polishing capacity) for the Diwali holidays. We note that softening jewellery sales dynamics might also pose risks for rough diamond demand in the coming months
#diamonds
💎De Beers has reported sales of USD 630mn at its 7th cycle in 2022. This was 11% above the historical average and also 21% higher YoY (vs. +24% YoY at the 6th cycle in 2022). However, according to De Beers CEO Bruce Cleaver, sales in the next few cycles might be negatively affected by the temporary closures of polishing factories in India (90% of global polishing capacity) for the Diwali holidays. We note that softening jewellery sales dynamics might also pose risks for rough diamond demand in the coming months
#diamonds
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Morning Bites
⚡️China’s steel consumption might be supported by the easing of power shortages in Sichuan province. According to China’s state media, the majority of industrial enterprises in the province resumed production this week, as rains allowed for the restoration of hydro electricity generation (78% of total electricity supply in Sichuan) and to reduce power use. Given that some large automobile factories returned to work in the province, this might be positive for China’s steel demand. Sichuan accounts for 5% of China’s GDP
📈Russian gold output rose 5.7% YoY in July, reversing from the 13.6% YoY decline in June, Rosstat reports. However, the country’s 7mo22 gold production was down 4.1% YoY. Given that in 2021 Russia accounted for some 9% of global gold mine output, the production recovery might be slightly negative for gold prices
#steel #gold
⚡️China’s steel consumption might be supported by the easing of power shortages in Sichuan province. According to China’s state media, the majority of industrial enterprises in the province resumed production this week, as rains allowed for the restoration of hydro electricity generation (78% of total electricity supply in Sichuan) and to reduce power use. Given that some large automobile factories returned to work in the province, this might be positive for China’s steel demand. Sichuan accounts for 5% of China’s GDP
📈Russian gold output rose 5.7% YoY in July, reversing from the 13.6% YoY decline in June, Rosstat reports. However, the country’s 7mo22 gold production was down 4.1% YoY. Given that in 2021 Russia accounted for some 9% of global gold mine output, the production recovery might be slightly negative for gold prices
#steel #gold
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Morning Bites
🌏Global manufacturing PMIs remained weak in August. The Eurozone Markit Manufacturing PMI declined to 49.6, from 49.8 in July (slightly below the market forecast of 49.7), reaching the lowest level since June 2020. China's official PMI slightly increased to 49.4, from 49.0 in July, exceeding the consensus estimate of 49.2. Meanwhile, China's Caixin manufacturing PMI dropped to 49.5, from 50.4 a month ago, falling short of the consensus forecast of 50.2
However, the US ISM manufacturing PMI stood at 52.8 (the same as in July), exceeding the Bloomberg survey median of 51.9
Below-50 manufacturing PMIs in China and the Eurozone indicate a manufacturing sector contraction in those regions, which is negative for the demand for industrial metals. However, the US manufacturing PMI still remained above 50, implying that manufacturing activity has not started to shrink in the US yet
#PMIs
🌏Global manufacturing PMIs remained weak in August. The Eurozone Markit Manufacturing PMI declined to 49.6, from 49.8 in July (slightly below the market forecast of 49.7), reaching the lowest level since June 2020. China's official PMI slightly increased to 49.4, from 49.0 in July, exceeding the consensus estimate of 49.2. Meanwhile, China's Caixin manufacturing PMI dropped to 49.5, from 50.4 a month ago, falling short of the consensus forecast of 50.2
However, the US ISM manufacturing PMI stood at 52.8 (the same as in July), exceeding the Bloomberg survey median of 51.9
Below-50 manufacturing PMIs in China and the Eurozone indicate a manufacturing sector contraction in those regions, which is negative for the demand for industrial metals. However, the US manufacturing PMI still remained above 50, implying that manufacturing activity has not started to shrink in the US yet
#PMIs
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Morning Bites (part 1)
🚘Global EV sales (passenger cars and light-duty vehicles) were up 63% YoY in July (vs. +57% YoY in June), according to Rho Motion. As we have written before, China’s EV sales remained strong in July: up 117% YoY vs. +129% YoY in June, supported by government stimulus measures. However, US & Canada EV sales decelerated in July to +12% YoY, from +26% YoY in June, while EU sales continued to fall: -2% YoY in July, after the 6% YoY decrease in June. The weak dynamics in the EU might have been caused by inflationary pressures. However, globally, the robust performance of EV sales is positive for the demand for battery metals (nickel, lithium and cobalt)
#EV #nickel #lithium #cobalt
🚘Global EV sales (passenger cars and light-duty vehicles) were up 63% YoY in July (vs. +57% YoY in June), according to Rho Motion. As we have written before, China’s EV sales remained strong in July: up 117% YoY vs. +129% YoY in June, supported by government stimulus measures. However, US & Canada EV sales decelerated in July to +12% YoY, from +26% YoY in June, while EU sales continued to fall: -2% YoY in July, after the 6% YoY decrease in June. The weak dynamics in the EU might have been caused by inflationary pressures. However, globally, the robust performance of EV sales is positive for the demand for battery metals (nickel, lithium and cobalt)
#EV #nickel #lithium #cobalt
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Morning Bites (part 2)
⚡️ArcelorMittal has decided to partially close 3 steel plants in Europe amid rising energy prices and weak steel demand. At the end of September, the company intends to cut production at its plants in Bremen, Hamburg and Asturias (Spain) that, combined, account for ~4% of EU steel output. Previously, the company announced a 6% HRC price hike in the EU, motivated by increased costs
#steel
⚡️ArcelorMittal has decided to partially close 3 steel plants in Europe amid rising energy prices and weak steel demand. At the end of September, the company intends to cut production at its plants in Bremen, Hamburg and Asturias (Spain) that, combined, account for ~4% of EU steel output. Previously, the company announced a 6% HRC price hike in the EU, motivated by increased costs
#steel
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