⛏ 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
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📌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
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📝 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
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📌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
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📌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
📌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
· 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%
📌 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
📝 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
📝 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
#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
📝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
⛏Labour unions plan to strike at Sibanye-Stillwater's platinum operations in South Africa
· The strikes would take place at the Rustenburg and the Marikana operations, which combined account for 15% of global platinum supply and 6% of palladium supply
❗️Potentially supportive for PGM prices
$SBSW #PGMs
· The strikes would take place at the Rustenburg and the Marikana operations, which combined account for 15% of global platinum supply and 6% of palladium supply
❗️Potentially supportive for PGM prices
$SBSW #PGMs
🗞Chinese finished steel net exports declined 35% YoY in March, according to China Customs
📝In 2mo22, Chinese finished steel net exports declined 22% YoY to 6mnt in 2mo22
• While steel imports fell 54% YoY in March, steel exports were down 40%
❗️Given there is no incentive for producers to boost exports, we do not expect a significant recovery in net exports in the coming months
#steel #statistics #China
📝In 2mo22, Chinese finished steel net exports declined 22% YoY to 6mnt in 2mo22
• While steel imports fell 54% YoY in March, steel exports were down 40%
❗️Given there is no incentive for producers to boost exports, we do not expect a significant recovery in net exports in the coming months
#steel #statistics #China
📈How to play coal price upside risk
⛏Among global coal producers, we want to draw attention to four miners:Peabody (BTU US), Warrior Met Coal (HCC US), Mongolian Mining Corp. (MMC; 975 HK) and Thungela (TGA LN). BTU mines coking (70% of revenue) and thermal coal (30%) in Australia and the US. HCC produces coking coal in the US and sells in the US, the EU and elsewhere, while MMC mines coking coal in Mongolia and exports mostly to China. TGA is a South African producer, running high quality thermal coalmines
💰At spot prices, TGA and BTU are the most interesting stocks. TGA trades at -0.4x 1-y fwd EV/EBITDA and generates a 140% FCF yield, while BTU trades at 0.7x EV/EBITDA, and a 62% FCF yield. MMC also looks attractive (1.2x EV/EBITDA and 40% FCF yield); however, we note downside risk to the company’s sales amid the COVID-19 outbreak in China. While HCC trades below its peers at roughly 0x EV/EBITDA and offers a 100% FCF yield, there is production and sales risk associated with the continuing strike
#coal
⛏Among global coal producers, we want to draw attention to four miners:Peabody (BTU US), Warrior Met Coal (HCC US), Mongolian Mining Corp. (MMC; 975 HK) and Thungela (TGA LN). BTU mines coking (70% of revenue) and thermal coal (30%) in Australia and the US. HCC produces coking coal in the US and sells in the US, the EU and elsewhere, while MMC mines coking coal in Mongolia and exports mostly to China. TGA is a South African producer, running high quality thermal coalmines
💰At spot prices, TGA and BTU are the most interesting stocks. TGA trades at -0.4x 1-y fwd EV/EBITDA and generates a 140% FCF yield, while BTU trades at 0.7x EV/EBITDA, and a 62% FCF yield. MMC also looks attractive (1.2x EV/EBITDA and 40% FCF yield); however, we note downside risk to the company’s sales amid the COVID-19 outbreak in China. While HCC trades below its peers at roughly 0x EV/EBITDA and offers a 100% FCF yield, there is production and sales risk associated with the continuing strike
#coal
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🔋Did you know? EV battery cathode chemistry
🚘 The EV market is growing rapidly as governments prioritise the green agenda. This has triggered an R&D race to increase battery density and simultaneously reduce costs
📝There are four main types of batteries: NMC, NCA, LFP and LMO. The difference is in the proportion of lithium, nickel, cobalt and other metals each of them use
• While LFP remains a cheap option, long-range EV output requires the use of more advanced NMC or NCA batteries (the energy density of which 2x LFP). As such, the shift toward NMC811, currently the most advanced and energy-dense battery, is likely to continue in the near term. In the last 3 years, NMC811 adoption has increased from 0% to 20%
• Thus, in addition to nickel benefiting from the growing need for batteries for EV production, the switch to batteries with higher nickel content increases the nickel demand even more, but we will get to that in details shortly
#nickel #EV
🚘 The EV market is growing rapidly as governments prioritise the green agenda. This has triggered an R&D race to increase battery density and simultaneously reduce costs
📝There are four main types of batteries: NMC, NCA, LFP and LMO. The difference is in the proportion of lithium, nickel, cobalt and other metals each of them use
• While LFP remains a cheap option, long-range EV output requires the use of more advanced NMC or NCA batteries (the energy density of which 2x LFP). As such, the shift toward NMC811, currently the most advanced and energy-dense battery, is likely to continue in the near term. In the last 3 years, NMC811 adoption has increased from 0% to 20%
• Thus, in addition to nickel benefiting from the growing need for batteries for EV production, the switch to batteries with higher nickel content increases the nickel demand even more, but we will get to that in details shortly
#nickel #EV
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🚘What is the effect of the EV roll-out on nickel demand?
📌There are 3 major nickel-intensive industries – stainless steel, alloys, and batteries for EVs. High-grade nickel is an essential material for the production of batteries of almost all types
🔋Since 2016, the share of batteries in nickel consumption has been exponentially increasing. However, it is still a modest share of global nickel demand
🚗Recent car sales data show that EV adoption is continuing at a breakneck pace. Globally, EV sales increased at a 51% CAGR in 2018-2021
📈As we expect this trend to persist, we see demand from EVs for nickel at c.1.2mnt/a (or 30% of global demand) by 2025F, growing at a 42% CAGR in 2021-2025F. Of this 42%, 32% is attributable to EVs sales growth and 10% - to NMC 811 adoption
#nickel #EVs
📌There are 3 major nickel-intensive industries – stainless steel, alloys, and batteries for EVs. High-grade nickel is an essential material for the production of batteries of almost all types
🔋Since 2016, the share of batteries in nickel consumption has been exponentially increasing. However, it is still a modest share of global nickel demand
🚗Recent car sales data show that EV adoption is continuing at a breakneck pace. Globally, EV sales increased at a 51% CAGR in 2018-2021
📈As we expect this trend to persist, we see demand from EVs for nickel at c.1.2mnt/a (or 30% of global demand) by 2025F, growing at a 42% CAGR in 2021-2025F. Of this 42%, 32% is attributable to EVs sales growth and 10% - to NMC 811 adoption
#nickel #EVs
📌India’s gold imports were down 89% YoY in March from a high base
• This was also 74% below the historical average
• According to Reuters, the decline might have been caused by the increase in secondary gold supply in the country amid growing inflation
❗️Potentially negative for gold prices since India accounts for roughly 25% of global gold jewellery demand
#gold
• This was also 74% below the historical average
• According to Reuters, the decline might have been caused by the increase in secondary gold supply in the country amid growing inflation
❗️Potentially negative for gold prices since India accounts for roughly 25% of global gold jewellery demand
#gold
💎China’s jewellery retailers reported a YoY decrease in LFL (same store) sales of gem-set and gold jewellery in 1Q22
• Chow Tai Fook reported a 12% YoY drop in LFL sales of gem-set, platinum and K-gold jewellery in 1Q22. The sales in Mainland China were roughly flat, while HK and Macau sales decreased 43% YoY
• At the same time, Luk Fook’s reported a 13% YoY decrease in gem-set jewellery sales in 1Q22. In Mainland China gem-set jewellery sales were down 14% YoY, while in HK and Macau the sales fell 18% YoY
• The decline was mostly caused by COVID-19 restrictions
❗️Potentially negative for the demand for rough diamonds
#diamonds
• Chow Tai Fook reported a 12% YoY drop in LFL sales of gem-set, platinum and K-gold jewellery in 1Q22. The sales in Mainland China were roughly flat, while HK and Macau sales decreased 43% YoY
• At the same time, Luk Fook’s reported a 13% YoY decrease in gem-set jewellery sales in 1Q22. In Mainland China gem-set jewellery sales were down 14% YoY, while in HK and Macau the sales fell 18% YoY
• The decline was mostly caused by COVID-19 restrictions
❗️Potentially negative for the demand for rough diamonds
#diamonds