⛏Steelmaking margins declined globally due to the increase in raw materials prices
• Chinese steel producers’ margins fell 10% through March, mostly driven by 22% growth of the raw materials basket price. At the same time, HRC China FOB rose 8% in March, which might be partially caused by the negative effect of China’s COVID-19 restrictions on production
• Domestic demand for steel in the country was negatively affected by COVID-19-related disruptions: new property sales in China’s key cities fell 47% YoY in March after China's property sales declined 10% YoY in 2mo22
• EU steel prices, meanwhile, rose more than 70% over the course of the month to USD 1,582/t, supported by supply issues amid geopolitics and rising energy costs. This led to more than 160% growth of EU HRC premium to HRC Black Sea FOB (USD 667/t) and to more than a 120% increase in the premium to HRC China FOB (USD 682/t). US steel prices were up 30% during the period
#steel
• Chinese steel producers’ margins fell 10% through March, mostly driven by 22% growth of the raw materials basket price. At the same time, HRC China FOB rose 8% in March, which might be partially caused by the negative effect of China’s COVID-19 restrictions on production
• Domestic demand for steel in the country was negatively affected by COVID-19-related disruptions: new property sales in China’s key cities fell 47% YoY in March after China's property sales declined 10% YoY in 2mo22
• EU steel prices, meanwhile, rose more than 70% over the course of the month to USD 1,582/t, supported by supply issues amid geopolitics and rising energy costs. This led to more than 160% growth of EU HRC premium to HRC Black Sea FOB (USD 667/t) and to more than a 120% increase in the premium to HRC China FOB (USD 682/t). US steel prices were up 30% during the period
#steel
📌China’s domestic excavator sales declined 48% YoY in January and 31% YoY in February
•Meanwhile, the country's total excavator sales (domestic + export) fell 20% YoY in January and 14% YoY in February
❗️The decline in excavator sales might indicate weakening construction activity, which could negatively affect China’s demand for industrial metals
#steel #copper #aluminium
•Meanwhile, the country's total excavator sales (domestic + export) fell 20% YoY in January and 14% YoY in February
❗️The decline in excavator sales might indicate weakening construction activity, which could negatively affect China’s demand for industrial metals
#steel #copper #aluminium
📌Peru’s copper output was roughly flat YoY in February
•Meanwhile, in January, the country’s copper production increased 13% YoY
❗️However, we note risks to Peru’s copper output in the coming months due to protests at the Las Bambas copper mine (1.7% of global copper supply)
📝Chile’s copper output was down 7% YoY in February
#copper
•Meanwhile, in January, the country’s copper production increased 13% YoY
❗️However, we note risks to Peru’s copper output in the coming months due to protests at the Las Bambas copper mine (1.7% of global copper supply)
📝Chile’s copper output was down 7% YoY in February
#copper
📌China’s authorities might introduce policy measures to stimulate domestic consumption amid COVID-19 lockdowns
•According to Bloomberg, the interest rate on one-year policy loans might be reduced next week
•Moreover, the PBoC plans to set up a stability fund to provide support to troubled financial firms
❗️The stimulus measures might support the country’s economic activity and, hence, the demand for metals
📝In March, China’s Caixin manufacturing PMI fell to 48.1, which indicates weakening manufacturing sector growth. This is a negative sign for MSCI EMEA materials
#China #global
•According to Bloomberg, the interest rate on one-year policy loans might be reduced next week
•Moreover, the PBoC plans to set up a stability fund to provide support to troubled financial firms
❗️The stimulus measures might support the country’s economic activity and, hence, the demand for metals
📝In March, China’s Caixin manufacturing PMI fell to 48.1, which indicates weakening manufacturing sector growth. This is a negative sign for MSCI EMEA materials
#China #global
🔗 Why Russian steelmakers look interesting
🌏 As we noted previously, Russian steelmakers, faced with EU sanctions, have good opportunities to redirect 'missing volumes' to other countries. Further, finished steel export volumes to 'unfriendly jurisdictions' are, apart from for Severstal, a modest share in their sales portfolios
❗️NLMK and MMK are the 2 most interesting companies in the space, in our view. As slabs constitute the majority of NLMK’s exports, we believe these volumes are secure (so far). MMK has the strongest domestic exposure, which exempts the company’s sales from the direct impact of sanctions
💰At spot prices, the companies’ trading multiples and yields look lucrative: NLMK offers a 31% FCF yield, trading at 2.3x 1-y fwd EV/EBITDA, while MMK remains the cheapest name among the big Russian steelmakers, at 1.2x spot EV/EBITDA and a 35% FCF yield
❓We see the risks being tightening price regulation in Russia and restrictions on semis exports to 'unfriendly countries'
🌏 As we noted previously, Russian steelmakers, faced with EU sanctions, have good opportunities to redirect 'missing volumes' to other countries. Further, finished steel export volumes to 'unfriendly jurisdictions' are, apart from for Severstal, a modest share in their sales portfolios
❗️NLMK and MMK are the 2 most interesting companies in the space, in our view. As slabs constitute the majority of NLMK’s exports, we believe these volumes are secure (so far). MMK has the strongest domestic exposure, which exempts the company’s sales from the direct impact of sanctions
💰At spot prices, the companies’ trading multiples and yields look lucrative: NLMK offers a 31% FCF yield, trading at 2.3x 1-y fwd EV/EBITDA, while MMK remains the cheapest name among the big Russian steelmakers, at 1.2x spot EV/EBITDA and a 35% FCF yield
❓We see the risks being tightening price regulation in Russia and restrictions on semis exports to 'unfriendly countries'
🔗 Ashinsky -- a name you’ve probably never heard of
📝 Ashinsky Metallurgical plant (AMEZ) is a small Russian steelmaker with 0.5mnt/a of thick plate EAF production. The company predominantly sells its products domestically, with export to the EU and CIS being only a bit over 10% of its production in 2021
🙉 Given AMEZ’s size and low profile, we expect it to be able to fly under western regulatory radar. Furthermore, the current Russian regulatory stance is beneficial for the company due to a fixed HRC price and pressure on scrap prices. On the other note, AMEZ has lowest carbon footprint among Russian steelmakers as it is 100% EAF producer
💰 With the current cash flow run-rate, the company will have a net cash balance sheet position roughly equal to its current market cap by YE22. The company has the lowest valuation and the highest FCF yield in the Russian steel space, we estimate. Higher than average operational leverage also positions AMEZ nicely in the current environment of high steel prices
📝 Ashinsky Metallurgical plant (AMEZ) is a small Russian steelmaker with 0.5mnt/a of thick plate EAF production. The company predominantly sells its products domestically, with export to the EU and CIS being only a bit over 10% of its production in 2021
🙉 Given AMEZ’s size and low profile, we expect it to be able to fly under western regulatory radar. Furthermore, the current Russian regulatory stance is beneficial for the company due to a fixed HRC price and pressure on scrap prices. On the other note, AMEZ has lowest carbon footprint among Russian steelmakers as it is 100% EAF producer
💰 With the current cash flow run-rate, the company will have a net cash balance sheet position roughly equal to its current market cap by YE22. The company has the lowest valuation and the highest FCF yield in the Russian steel space, we estimate. Higher than average operational leverage also positions AMEZ nicely in the current environment of high steel prices
👍1
📌CISA mills’ daily crude steel output increased 5.4% in the last ten days of March, compared with the second ten days of the month
• However, this was 2.3% YoY lower
• Meanwhile, CISA mills’ finished steel inventories decreased 2.9% through the period (up 13% YoY)
• We note that in early April, China’s crude steel output might be supported by the lifting of the COVID-19 lockdown in Tangshan (14% of China’s steel production)
❗️This, coupled with the country's plummeting property sales, might negatively affect steel prices
#steel
• However, this was 2.3% YoY lower
• Meanwhile, CISA mills’ finished steel inventories decreased 2.9% through the period (up 13% YoY)
• We note that in early April, China’s crude steel output might be supported by the lifting of the COVID-19 lockdown in Tangshan (14% of China’s steel production)
❗️This, coupled with the country's plummeting property sales, might negatively affect steel prices
#steel
📌Preliminary data suggests a 20% YoY decline in new car registrations in France, the UK, Spain, Italy and Germany in March
• In France and Germany, car sales decreased 20% YoY and 17% YoY, respectively
• Car registrations in Spain and Italy both fell 30% YoY
• Meanwhile, UK vehicle sales were down 14% YoY
❗️Given these 5 countries accounted for 70% of total new vehicle sales in Europe in 2021, this implies a significant YoY drop in EU and UK new car registrations in March
📝The full results for March registrations are to be published on 20 April
#cars
• In France and Germany, car sales decreased 20% YoY and 17% YoY, respectively
• Car registrations in Spain and Italy both fell 30% YoY
• Meanwhile, UK vehicle sales were down 14% YoY
❗️Given these 5 countries accounted for 70% of total new vehicle sales in Europe in 2021, this implies a significant YoY drop in EU and UK new car registrations in March
📝The full results for March registrations are to be published on 20 April
#cars
📌The UK plans to build 8 new nuclear reactors by 2030, according to the country’s new energy security strategy
• The strategy implies that the UK will increase its nuclear power capacity to 24GW in 2050 from 9GW in 2021
❗️Given the increase is equivalent to 4% of current global nuclear power capacity, a successful enaction of the plan would support demand for uranium in the long term
#uranium
• The strategy implies that the UK will increase its nuclear power capacity to 24GW in 2050 from 9GW in 2021
❗️Given the increase is equivalent to 4% of current global nuclear power capacity, a successful enaction of the plan would support demand for uranium in the long term
#uranium
👍1
💎 Alrosa SDN inclusion – what does it mean for global markets and who benefits?
📌 Yesterday, the US included Alrosa onto its SDN list. All operations with the company should be halted within 1 month
❗️Alrosa is one of 2 major diamond producers in the world, with almost a 30% share in the global rough diamond market. As further Alrosa supply is at risk, we expect strong, 30-50% upward pressure on rough diamond prices in the coming quarters amid robust midstream demand
💰 The main beneficiary of rough diamonds price growth would be Petra – a small cap company, mining diamonds mostly in South Africa and Tanzania, and running the Cullinan mine, known for its rare blue diamonds. Assuming 30-50% price growth, Petra would be trading at 0.2x EV/EBITDA, offering 80-100% FCF yield at such prices.
📌 Yesterday, the US included Alrosa onto its SDN list. All operations with the company should be halted within 1 month
❗️Alrosa is one of 2 major diamond producers in the world, with almost a 30% share in the global rough diamond market. As further Alrosa supply is at risk, we expect strong, 30-50% upward pressure on rough diamond prices in the coming quarters amid robust midstream demand
💰 The main beneficiary of rough diamonds price growth would be Petra – a small cap company, mining diamonds mostly in South Africa and Tanzania, and running the Cullinan mine, known for its rare blue diamonds. Assuming 30-50% price growth, Petra would be trading at 0.2x EV/EBITDA, offering 80-100% FCF yield at such prices.
👍1
📌How to hedge geopolitical risks with gold miners
·As we noted earlier, geopolitical uncertainty has driven capital into gold ETFs, which has already resulted in a 5% increase of the gold price. We believe gold stocks provide a good hedge against inflation and the declining trustworthiness of fiat currencies.
⛏ Picking stocks, we want to draw attention to four goldminers in particular: Newmont (the highest growth, but the most expensive), Barrick Gold (no growth but 20% cheaper), Newcrest (the cheapest of the big boys) and Polyus (2x lower cash costs than the rest).
💰 We see Newcrest as the most interesting, trading at 4.2x 1-y fwd EV/EBITDA (vs. hist. 6x EV/EBITDA and 7-9x for its peers) and offering a ~10% FCF yield (2x its peers). It was penalised by investors for operational underperformance, but this has been more than priced-in already, in our view
#gold $NCM $NEM $GOLD
·As we noted earlier, geopolitical uncertainty has driven capital into gold ETFs, which has already resulted in a 5% increase of the gold price. We believe gold stocks provide a good hedge against inflation and the declining trustworthiness of fiat currencies.
⛏ Picking stocks, we want to draw attention to four goldminers in particular: Newmont (the highest growth, but the most expensive), Barrick Gold (no growth but 20% cheaper), Newcrest (the cheapest of the big boys) and Polyus (2x lower cash costs than the rest).
💰 We see Newcrest as the most interesting, trading at 4.2x 1-y fwd EV/EBITDA (vs. hist. 6x EV/EBITDA and 7-9x for its peers) and offering a ~10% FCF yield (2x its peers). It was penalised by investors for operational underperformance, but this has been more than priced-in already, in our view
#gold $NCM $NEM $GOLD
👍1
📌According to Mastercard SpendingPulse, preliminary US jewellery sales increased 12% YoY in March
• The growth rate decelerated from 22% YoY in February
• According to Mastercard, the jewellery sales remain strong but are stabilising, since consumers are resuming spending on in-person entertainment activities
❗️However, we note that jewellery sales might be negatively affected by the weakening consumer sentiment, which could pressure polished diamonds prices in the short term
#diamonds
• The growth rate decelerated from 22% YoY in February
• According to Mastercard, the jewellery sales remain strong but are stabilising, since consumers are resuming spending on in-person entertainment activities
❗️However, we note that jewellery sales might be negatively affected by the weakening consumer sentiment, which could pressure polished diamonds prices in the short term
#diamonds
📌Severstal has announced a 1% decrease in the domestic CRC price for traders, to RUB 77.9k/t (USD 937/t)
• The announced price level is in line with NLMK’s CRC prices
• At the same time, Severstal kept its domestic HRC price unchanged at RUB 72.5k/t (USD 872/t)
❗️We note that due to the growth of export prices from USD 915/t to USD 1,000/t, the domestic HRC price discount increased from USD 67/t to USD 129/t
#steel #rusteel
• The announced price level is in line with NLMK’s CRC prices
• At the same time, Severstal kept its domestic HRC price unchanged at RUB 72.5k/t (USD 872/t)
❗️We note that due to the growth of export prices from USD 915/t to USD 1,000/t, the domestic HRC price discount increased from USD 67/t to USD 129/t
#steel #rusteel
📌US light vehicle sales decreased 21% YoY in March, with the rate of decline accelerating from 11% YoY in February
• At the same time, the SAAR (seasonally adjusted annual rate) sales fell 25% YoY in March (vs. 10% in February)
• The decrease in light vehicle sales was caused by the continuing automotive parts shortage
📝North America accounts for some 20% and 11% of global autocatalyst palladium and platinum demand, respectively
• Previously, Norilsk Nickel forecasted palladium and platinum market deficit of 0.3mnoz and 1mnoz in 2022, respectively, which was roughly in line with our expectations
❗️However, we note that given there is no evident recovery in vehicle production, there is a risk of palladium and platinum markets being either balanced or in surplus in 2022, which might negatively affect the prices
#PGMs
• At the same time, the SAAR (seasonally adjusted annual rate) sales fell 25% YoY in March (vs. 10% in February)
• The decrease in light vehicle sales was caused by the continuing automotive parts shortage
📝North America accounts for some 20% and 11% of global autocatalyst palladium and platinum demand, respectively
• Previously, Norilsk Nickel forecasted palladium and platinum market deficit of 0.3mnoz and 1mnoz in 2022, respectively, which was roughly in line with our expectations
❗️However, we note that given there is no evident recovery in vehicle production, there is a risk of palladium and platinum markets being either balanced or in surplus in 2022, which might negatively affect the prices
#PGMs
🔥1
⛏ What are the prospects for redirecting Russian coal export volumes?
📌 The EU has imposed a ban on Russian coal exports from August 2022. We estimate that Russian exports to the EU equalled 9.8mnt of coking and 47mnt of steam coal in 2021
🚢 Russian producers need to redirect volumes from 'unfriendly' countries to other jurisdictions. In the worst-case scenario, we estimate these volumes as 13mnt of coking and 76mnt of steam coal (43% and 49% of total Russian exports, respectively)
❗️ The “Missing volumes” are 8.6 times covered for coking and 6.5 for steam coal. For coking coal, the main destinations of the volumes are major steelmaking countries: India, China, Vietnam and Turkey. For steam coal, which is mostly used in electricity generation, we see the same set of countries plus the Philippines, Malaysia, Thailand and Brazil. As such, we believe that Russian volumes have good prospects of redirection
💰Coking and steam coal prices remain elevated amid persisting supply concerns, at USD 420/t and ~280/t
📌 The EU has imposed a ban on Russian coal exports from August 2022. We estimate that Russian exports to the EU equalled 9.8mnt of coking and 47mnt of steam coal in 2021
🚢 Russian producers need to redirect volumes from 'unfriendly' countries to other jurisdictions. In the worst-case scenario, we estimate these volumes as 13mnt of coking and 76mnt of steam coal (43% and 49% of total Russian exports, respectively)
❗️ The “Missing volumes” are 8.6 times covered for coking and 6.5 for steam coal. For coking coal, the main destinations of the volumes are major steelmaking countries: India, China, Vietnam and Turkey. For steam coal, which is mostly used in electricity generation, we see the same set of countries plus the Philippines, Malaysia, Thailand and Brazil. As such, we believe that Russian volumes have good prospects of redirection
💰Coking and steam coal prices remain elevated amid persisting supply concerns, at USD 420/t and ~280/t
👍3
📌How the cash cost of delivery might reshape
🚢The redirection of Russia’s coal exports might lead to higher delivery costs for miners. Moreover, coal producers could encounter logistical bottlenecks, such as insufficient railway capacity. The restructuring of global supply chains might not be instantaneous. These factors could well further drive up coal prices
· If we assume the redirection of Russia’s coal exports from the EU and Japan (2021 avg. freight rates of USD 12-13/t) to China and India, the cash cost would grow USD 20-30/t,on our numbers
📈This shift would lead to a 15-25% and 30-60% increase in Russian coking and thermal coal producers’ cash costs, respectively
· Global coal producers would probably also change their main directions: in particular, Australia might switch to the EU. The reallocation of exports from India, Japan, South Korea and China (2021 avg. freight cost of USD 13-16/t) might lead to a 30% rise of delivery costs, as in 2021, avg. freight rates to the EU were USD 20/t
#coal
🚢The redirection of Russia’s coal exports might lead to higher delivery costs for miners. Moreover, coal producers could encounter logistical bottlenecks, such as insufficient railway capacity. The restructuring of global supply chains might not be instantaneous. These factors could well further drive up coal prices
· If we assume the redirection of Russia’s coal exports from the EU and Japan (2021 avg. freight rates of USD 12-13/t) to China and India, the cash cost would grow USD 20-30/t,on our numbers
📈This shift would lead to a 15-25% and 30-60% increase in Russian coking and thermal coal producers’ cash costs, respectively
· Global coal producers would probably also change their main directions: in particular, Australia might switch to the EU. The reallocation of exports from India, Japan, South Korea and China (2021 avg. freight cost of USD 13-16/t) might lead to a 30% rise of delivery costs, as in 2021, avg. freight rates to the EU were USD 20/t
#coal
🔥2👍1
📝 Australian coal export ban – might history repeat itself?
📌At the end of 2020, China imposed a ban on Australian coal imports. In 2019, China accounted for 23% of Australia’s coking and 24% of thermal coal exports (50mnt and 43mnt, respectively)
📌The imposition of the ban precipitated a spread of more than USD 110/t between Australian and Chinese coking coal prices in 2021 on average, with one-off spikes to USD 220/t vs. the historical USD 6/t. However, during 2021, Australian coal flows were redistributed to other countries, while China boosted its domestic coal production, which reversed Australia's coking coal discount to a premium. Moreover, it has now reached an even higher level - USD 60/t on average YTD
📌However, the price normalisation and volumes redirection took ~1 year (from Nov-20 to Dec-21), while the coal market found a new equilibrium
❗️We believe history might repeat itself, this time with Russia. As we noted earlier, there are plenty of potential markets for Russian coal
📌At the end of 2020, China imposed a ban on Australian coal imports. In 2019, China accounted for 23% of Australia’s coking and 24% of thermal coal exports (50mnt and 43mnt, respectively)
📌The imposition of the ban precipitated a spread of more than USD 110/t between Australian and Chinese coking coal prices in 2021 on average, with one-off spikes to USD 220/t vs. the historical USD 6/t. However, during 2021, Australian coal flows were redistributed to other countries, while China boosted its domestic coal production, which reversed Australia's coking coal discount to a premium. Moreover, it has now reached an even higher level - USD 60/t on average YTD
📌However, the price normalisation and volumes redirection took ~1 year (from Nov-20 to Dec-21), while the coal market found a new equilibrium
❗️We believe history might repeat itself, this time with Russia. As we noted earlier, there are plenty of potential markets for Russian coal
👍4
📌Russia’s RZD has started construction of a railway junction on the Trans-Siberian railway
· The commissioning is planned for 2024
· The new junction is to increase the carrying capacity of that part of Trans-Siberian railway some 15% to 167mnt/a by 2025
❗️This might provide better conditions for the redirection of Russia’s coal and metals exports to Asian countries
#global
· The commissioning is planned for 2024
· The new junction is to increase the carrying capacity of that part of Trans-Siberian railway some 15% to 167mnt/a by 2025
❗️This might provide better conditions for the redirection of Russia’s coal and metals exports to Asian countries
#global
🔥2
📌China’s new EV sales rose 114% YoY in March, with the increase decelerating from 184% YoY in February
· The rate of growth might have slowed down due to China’s COVID-19 restrictions
· Meanwhile, in March, the share of EVs in China’s total car sales increased to 22% from 19% in February
❗️Strong new EV sales in China might support 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)
#EV #nickel #lithium #cobalt
· The rate of growth might have slowed down due to China’s COVID-19 restrictions
· Meanwhile, in March, the share of EVs in China’s total car sales increased to 22% from 19% in February
❗️Strong new EV sales in China might support 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)
#EV #nickel #lithium #cobalt