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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Morning Bites (part 1)
📍New car registrations in France, the UK, Spain, Italy and Germany rose 5% YoY in August from a low base, according to preliminary data. However, this constituted a 31% decline from the 2019 level. In France and Germany, sales were down 29% and 36%, respectively, from the August 2019 results. Italy and Spain registrations decreased 20% and 30%, respectively, while UK sales were 26% below the 2019 level. Given that these 5 countries account for ~70% of total new vehicle registrations in Europe, this means that EU + UK car sales remained weak relative to the pre-pandemic levels, but rose YoY due to the poor performance in August 2021. The full results for July and August sales are to be published on 16 September
#cars
📍New car registrations in France, the UK, Spain, Italy and Germany rose 5% YoY in August from a low base, according to preliminary data. However, this constituted a 31% decline from the 2019 level. In France and Germany, sales were down 29% and 36%, respectively, from the August 2019 results. Italy and Spain registrations decreased 20% and 30%, respectively, while UK sales were 26% below the 2019 level. Given that these 5 countries account for ~70% of total new vehicle registrations in Europe, this means that EU + UK car sales remained weak relative to the pre-pandemic levels, but rose YoY due to the poor performance in August 2021. The full results for July and August sales are to be published on 16 September
#cars
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Morning Bites (part 2)
🚘US light vehicle sales were up 3% YoY in August from the low base (vs. -12% YoY in July). However, they were down 1% MoM and came 31% below the 2019 level. Seasonally-adjusted sales volumes rose 1% YoY in August, but were 23% below the 2019 level. It is reasonable to expect weak vehicle sales in the coming months amid inflationary pressures and supply chain disruptions, which might be negative for PGM demand
☢️Germany is to take its 3 remaining nuclear reactors offline by the end of 2022, in line with the initial phase-out plan, according to the country’s Economy Minister. However, 2 of them are to be kept on standby until April 2023, to insure against electricity shortages in the winter. The 3 German reactors account for 3% of the EU's, and 1% of global, uranium requirements. However, since the plan was disclosed earlier, we do not see this affecting the uranium market outlook
#cars #uranium
🚘US light vehicle sales were up 3% YoY in August from the low base (vs. -12% YoY in July). However, they were down 1% MoM and came 31% below the 2019 level. Seasonally-adjusted sales volumes rose 1% YoY in August, but were 23% below the 2019 level. It is reasonable to expect weak vehicle sales in the coming months amid inflationary pressures and supply chain disruptions, which might be negative for PGM demand
☢️Germany is to take its 3 remaining nuclear reactors offline by the end of 2022, in line with the initial phase-out plan, according to the country’s Economy Minister. However, 2 of them are to be kept on standby until April 2023, to insure against electricity shortages in the winter. The 3 German reactors account for 3% of the EU's, and 1% of global, uranium requirements. However, since the plan was disclosed earlier, we do not see this affecting the uranium market outlook
#cars #uranium
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🗞Today China published preliminary import/export statistics for August. See preliminary data in the table above
#statistics #China
#statistics #China
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Morning Bites (part 1)
🏦Global central banks were net purchasers of 37t of gold in July (vs. the revised 63t of purchases in June), World Gold Council reports. The biggest buyer was Qatar, with 15t purchased in July (1t in June), while Turkey bought 12t in July (8t in June). The biggest seller was Kazakhstan that sold 11t of gold in July (after buying 4t in June). We note that, despite central banks’ positive net purchases, gold prices were pressured in July by net outflows from gold-backed ETFs
📈CISA mills daily crude steel output rose 1.8% in late August from the second ten days of the month. However, this was 0.9% YoY lower (vs. -6.7% YoY in mid-August). The partial production recovery might have been caused by the slight revival in demand, as steel inventories fell 8.0% between 20 and 31 August (but were still up 18.7% YoY as of 31 August). However, we keep a negative outlook on China’s steel production, given the weak demand from construction sector and the plans to reduce steel output
#gold #steel
🏦Global central banks were net purchasers of 37t of gold in July (vs. the revised 63t of purchases in June), World Gold Council reports. The biggest buyer was Qatar, with 15t purchased in July (1t in June), while Turkey bought 12t in July (8t in June). The biggest seller was Kazakhstan that sold 11t of gold in July (after buying 4t in June). We note that, despite central banks’ positive net purchases, gold prices were pressured in July by net outflows from gold-backed ETFs
📈CISA mills daily crude steel output rose 1.8% in late August from the second ten days of the month. However, this was 0.9% YoY lower (vs. -6.7% YoY in mid-August). The partial production recovery might have been caused by the slight revival in demand, as steel inventories fell 8.0% between 20 and 31 August (but were still up 18.7% YoY as of 31 August). However, we keep a negative outlook on China’s steel production, given the weak demand from construction sector and the plans to reduce steel output
#gold #steel
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Morning Bites (part 2)
🔗China’s finished steel net exports rose 32% YoY in August, with the growth rate accelerating from 27% YoY in July. The increase in exports might have been driven by the sluggish domestic demand for steel, coupled with the partial production recovery: the average daily steel output was slightly increasing through August
📈China’s unwrought aluminium and product exports rose 10% YoY in August (vs. +39% YoY in July). The deceleration might have been partially caused by weaker aluminium production in August, as a heatwave curbed hydropower generation in some provinces, which resulted in aluminium smelter stoppages, according to industry reports
#steel #aluminium
🔗China’s finished steel net exports rose 32% YoY in August, with the growth rate accelerating from 27% YoY in July. The increase in exports might have been driven by the sluggish domestic demand for steel, coupled with the partial production recovery: the average daily steel output was slightly increasing through August
📈China’s unwrought aluminium and product exports rose 10% YoY in August (vs. +39% YoY in July). The deceleration might have been partially caused by weaker aluminium production in August, as a heatwave curbed hydropower generation in some provinces, which resulted in aluminium smelter stoppages, according to industry reports
#steel #aluminium
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Morning Bites (part 3)
📈China’s unwrought copper imports rose 26% YoY in August, accelerating from the 9% YoY increase in July. Meanwhile, the country’s copper concentrate imports were up 20.1% YoY in August (vs. +0.5% YoY in July). According to Reuters, the increase in imports might have been caused by low copper prices in August, which supported buying interest among producers. In addition, power shortages in some parts of China led to a decline in copper production, which might have contributed to the increase in unwrought copper imports
#copper
📈China’s unwrought copper imports rose 26% YoY in August, accelerating from the 9% YoY increase in July. Meanwhile, the country’s copper concentrate imports were up 20.1% YoY in August (vs. +0.5% YoY in July). According to Reuters, the increase in imports might have been caused by low copper prices in August, which supported buying interest among producers. In addition, power shortages in some parts of China led to a decline in copper production, which might have contributed to the increase in unwrought copper imports
#copper
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What has happened with copper head grades over the past 10 years?
📉According to our calculations, the weighted average head grade of the 20 largest copper mines (~40% of global copper production) dropped ~20% from 2010 to 2021. This implies a -2% 2010-21 CAGR
❗️This means that, other things being equal, copper production costs should have outpaced the inflation rate by 2% each year. In the next post we shall consider what actually happened with copper production costs during the last 10 years
#copper
📉According to our calculations, the weighted average head grade of the 20 largest copper mines (~40% of global copper production) dropped ~20% from 2010 to 2021. This implies a -2% 2010-21 CAGR
❗️This means that, other things being equal, copper production costs should have outpaced the inflation rate by 2% each year. In the next post we shall consider what actually happened with copper production costs during the last 10 years
#copper
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What has happened with copper production costs over the past 10 years?
📈In our previous post, we concluded that, due to grade depletion, copper production costs should have outpaced the inflation rate by 2% per year over the past 10 years
💰In fact, the 90th percentile cash costs have fallen ~1% since the beginning of 2010
📊We identify the following factors that contributed to the cost variation: grade depletion (+20% contribution), USD inflation (+7% contribution), oil deflation (-1%), local inflation (+29%), depreciation of local currencies to USD (-48%) and other factors, such as efficiency gains (-9%)
❗️The costs lagged far behind the inflation of 40-50% in African countries, where marginal producers are mostly located, since the effect of inflation (local and USD) was offset by the effect of the depreciation in local currencies
#copper
📈In our previous post, we concluded that, due to grade depletion, copper production costs should have outpaced the inflation rate by 2% per year over the past 10 years
💰In fact, the 90th percentile cash costs have fallen ~1% since the beginning of 2010
📊We identify the following factors that contributed to the cost variation: grade depletion (+20% contribution), USD inflation (+7% contribution), oil deflation (-1%), local inflation (+29%), depreciation of local currencies to USD (-48%) and other factors, such as efficiency gains (-9%)
❗️The costs lagged far behind the inflation of 40-50% in African countries, where marginal producers are mostly located, since the effect of inflation (local and USD) was offset by the effect of the depreciation in local currencies
#copper
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How have copper margins behaved over the past 10 years?
📌As we noted in the previous post, through the period, the 90th percentile cash costs have changed little, since marginal producers are mostly located in African countries, in which the depreciation of national currencies to USD has considerably exceeded inflation. The variation in margins was mainly driven by copper price dynamics. The margins reached a local maximum of 48% in 3Q21, when copper prices jumped to USD 9,500/t
📌History shows that, during the market downturn, the 90th percentile margin was ~5%. This implies that, assuming current costs at USD 5,652/t, there is still a 22% downside to the current spot copper price of USD 7,670/t
📌In our next post, we look at the valuation of major copper producers under this scenario
#copper
📌As we noted in the previous post, through the period, the 90th percentile cash costs have changed little, since marginal producers are mostly located in African countries, in which the depreciation of national currencies to USD has considerably exceeded inflation. The variation in margins was mainly driven by copper price dynamics. The margins reached a local maximum of 48% in 3Q21, when copper prices jumped to USD 9,500/t
📌History shows that, during the market downturn, the 90th percentile margin was ~5%. This implies that, assuming current costs at USD 5,652/t, there is still a 22% downside to the current spot copper price of USD 7,670/t
📌In our next post, we look at the valuation of major copper producers under this scenario
#copper
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How do copper producers look under different scenarios?
💰Generally, pure-play copper producers (such as Freeport, First Quantum and Antofagasta) look quite expensive on spot, and become even less attractive assuming the 22% downside to the current spot copper price (discussed in the previous post)
💰Glencore and Teck appear much more attractive than the pure-play firms. First of all, they are much cheaper. Secondly, their multiples do not rise that much in the stress-case scenario for copper (with other commodities on spot), since the 2 firms derive only 23% and 36% of their revenues from copper, respectively, and 40-43% - from coal
#copper
💰Generally, pure-play copper producers (such as Freeport, First Quantum and Antofagasta) look quite expensive on spot, and become even less attractive assuming the 22% downside to the current spot copper price (discussed in the previous post)
💰Glencore and Teck appear much more attractive than the pure-play firms. First of all, they are much cheaper. Secondly, their multiples do not rise that much in the stress-case scenario for copper (with other commodities on spot), since the 2 firms derive only 23% and 36% of their revenues from copper, respectively, and 40-43% - from coal
#copper
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Morning Bites (part 1)
📉Gold-backed ETFs reduced their holdings through August, with net outflows at 57t (after outflows of 84t in July and 31t in June). August was the fourth consecutive month of net outflows; however, the YTD cumulative net inflow remained positive, at 79t. According to the World Gold Council (WGC), the outflows were partially caused by hawkish US Fed monetary policy. ETF outflows were a negative factor for gold prices in August
💍Signet has reported an 8.2% YoY decline in same store sales in 2Q22 (May-July). This was the first drop since 2Q20. Same store sales in North America were down 8.7% YoY, while sales in the international segment fell 1.5% YoY. The company anticipates a shift of consumer discretionary spending away from the jewellery category amid the inflationary pressure, which is in line with our view. We note that weakening jewellery sales are negative for diamond demand
#ETF #gold #diamonds
📉Gold-backed ETFs reduced their holdings through August, with net outflows at 57t (after outflows of 84t in July and 31t in June). August was the fourth consecutive month of net outflows; however, the YTD cumulative net inflow remained positive, at 79t. According to the World Gold Council (WGC), the outflows were partially caused by hawkish US Fed monetary policy. ETF outflows were a negative factor for gold prices in August
💍Signet has reported an 8.2% YoY decline in same store sales in 2Q22 (May-July). This was the first drop since 2Q20. Same store sales in North America were down 8.7% YoY, while sales in the international segment fell 1.5% YoY. The company anticipates a shift of consumer discretionary spending away from the jewellery category amid the inflationary pressure, which is in line with our view. We note that weakening jewellery sales are negative for diamond demand
#ETF #gold #diamonds
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Morning Bites (part 2)
⚡️Dunkerque aluminium smelter in France plans to cut output 22% amid high energy costs. The production curtailment might amount to 64kt/a, or ~1% of Europe’s primary aluminium production. As we wrote previously, Europe has already lost 50% of its aluminium smelting capacity within the past year as a result of the energy crisis, while the global aluminium capacity reduction might have reached 8% of the total supply
#aluminium
⚡️Dunkerque aluminium smelter in France plans to cut output 22% amid high energy costs. The production curtailment might amount to 64kt/a, or ~1% of Europe’s primary aluminium production. As we wrote previously, Europe has already lost 50% of its aluminium smelting capacity within the past year as a result of the energy crisis, while the global aluminium capacity reduction might have reached 8% of the total supply
#aluminium
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Morning Bites (part 1)
📉Copper output in Chile and Peru dropped 8% YoY in July (vs. -1% YoY in June)
🇨🇱Chile’s copper production fell 9% YoY in July (vs. -5% YoY in June). The YoY decline continued for the 12th consecutive month. According to industry sources, the output contraction might have been caused by grade depletion and drought issues
🇵🇪Peru’s copper output decreased 7% YoY in July, reversing from the 9% YoY growth in June. Peru’s Ministry of Energy and Mines said that the decline was mainly driven by the weak performance of Antamina (-9% YoY) and Southern Copper’s Toquepala and Cuajone (-15% YoY, combined)
✏️The 2 countries, combined, account for ~37% of global mine copper supply
❗️Despite sluggish production, we see downside to copper prices amid the depressed demand
#copper
📉Copper output in Chile and Peru dropped 8% YoY in July (vs. -1% YoY in June)
🇨🇱Chile’s copper production fell 9% YoY in July (vs. -5% YoY in June). The YoY decline continued for the 12th consecutive month. According to industry sources, the output contraction might have been caused by grade depletion and drought issues
🇵🇪Peru’s copper output decreased 7% YoY in July, reversing from the 9% YoY growth in June. Peru’s Ministry of Energy and Mines said that the decline was mainly driven by the weak performance of Antamina (-9% YoY) and Southern Copper’s Toquepala and Cuajone (-15% YoY, combined)
✏️The 2 countries, combined, account for ~37% of global mine copper supply
❗️Despite sluggish production, we see downside to copper prices amid the depressed demand
#copper
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Morning Bites (part 2)
🔗Turkey’s steel production fell 21% YoY in July, with the decline rate accelerating from 13% YoY in June. Meanwhile, Turkey’s apparent steel consumption dropped 11% YoY after being roughly flat YoY in June. As production fell more significantly than the consumption, steel exports dropped 23% YoY, while imports were down only 2% YoY. According to TCUD, some Turkish producers halted or reduced production due to the increased energy prices and the subdued demand for steel
#steel
🔗Turkey’s steel production fell 21% YoY in July, with the decline rate accelerating from 13% YoY in June. Meanwhile, Turkey’s apparent steel consumption dropped 11% YoY after being roughly flat YoY in June. As production fell more significantly than the consumption, steel exports dropped 23% YoY, while imports were down only 2% YoY. According to TCUD, some Turkish producers halted or reduced production due to the increased energy prices and the subdued demand for steel
#steel
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