🔗 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

📌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

📌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

📌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

💎 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.

📌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

📌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

📌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

📌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

📌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

📝 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

📌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

📌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

📌China’s new internal combustion engine (ICE) car sales declined 24% YoY in March

· The decline might have been caused by the semiconductor shortage, COVID-19 lockdowns and the substitution ICE cars with EVs

· Moreover, according to the CEO of BMW, the chip shortage might continue to affect vehicle production until the end of 2023. Meanwhile, the CEO of Volkswagen expects the shortage to persist till the end of 2024

❗️Due to weak car production, there is a risk of the palladium and platinum markets moving toward surplus, which might negatively affect prices

📝China’s automotive sector accounts for some 31% of global autocatalyst palladium demand

#PGMs

☢️ Kazatomprom – 6% FY21 dividends yield in line with the policy
 
📌 Kazatomprom BoD recommended to pay KZT 876.74/share (USD c.1.94/sh) as FY21 dividends. This implies c.75% payout of Kazatomprom’s FCF for dividends, which stands in line with the company’s dividends policy

❗️On our numbers, FY21 dividend yield equals 6%

⛏Mechel – why this coalminer is still interesting in 2022
 
📝 Mechel is an integrated long steel producer with large-scale coal operations. The company produces c.5.6mnt of coking coal, selling 3.5mnt externally

💵 The company historically dragged a heavy debt burden – ND/EBITDA stood at 7.8x in YE20. However, this had declined to 2.3x by YE21. If spot prices persist, we calculate it would decline to 0.6x by YE22

💰 However, the abnormal coal prices are supportive for the company. On our numbers, Mechel offers a FCF yield of c.320% on ords. at spot prices. Robust FCF generation paves the way for strong equity expansion in the coming quarters. The prefs also look interesting, offering a 60% 1-y fwd div. yield at spot prices 

🚢 In the current tight environment, with Russian export volumes redirecting to Asia, Mechel continues to operate normally as sanctions have had a limited impact on its business so far. Moreover, its major exporting asset – Yakutugol – is located to the RHS of the railway bottleneck

⛏ Raspadskaya – major Russian coking coal producer 
  
📝 Raspadskaya is a pure semi-soft coking coal producer with a cash cost of USD с.70/t FOB (right side of cash cost curve), low financial leverage, and an established dividend policy. Raspadskaya externally sells 15.5mnt of coal concentrate per year 
 
💰The company offers an attractive 74% 1y-fwd FCF yield at spot, trading at 0.6x EV/EBITDA. However, as Evraz, a London entity, holds a >90% stake in RASP, it would make little sense to pay dividends in the short-term, as the holding company cannot receive them 
 
🚢In light of the EU ban on Russian coal exports, we note that Raspadskaya has low exposure to EU markets: shipments to the EU accounted for only 10% in 2021. However, Raspadksaya’s assets are located to the left of railway bottleneck, which might cause difficulties with the redirection of its volumes to Eastern countries

🗞Today China published preliminary import/export statistics for March. See preliminary data in the table above

#statistics #China

🗞China’s iron ore imports fell 15% YoY in March, according to China Customs

📝In 2mo22, China’s iron ore imports were roughly flat YoY (vs. the 18% YoY decline in December)

• The decline might have been caused by logistical issues amid the COVID-19 outbreak, the reduction of steel production at the beginning of the month, and the strong domestic iron ore output in recent months

• We note that iron ore imports might be supported by the easing of the COVID-19 situation in the country in the coming months

#iron_ore #statistics #China