📈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
💎De Beers has reported sales of USD 565mn at its 3rd cycle in 2022
• This was 4% above the historical average and 26% YoY higher
• According to Bruce Cleaver, the CEO of De Beers, the demand for rough diamonds remained strong on the back of continued YoY growth of consumer demand for jewellery
❗️However, we note downside risks to downstream diamond demand in the coming months due to weakening consumer sentiment, a possible economic slowdown and COVID-19 lockdowns in China
$AAL #diamonds
• This was 4% above the historical average and 26% YoY higher
• According to Bruce Cleaver, the CEO of De Beers, the demand for rough diamonds remained strong on the back of continued YoY growth of consumer demand for jewellery
❗️However, we note downside risks to downstream diamond demand in the coming months due to weakening consumer sentiment, a possible economic slowdown and COVID-19 lockdowns in China
$AAL #diamonds
📈Who are the major beneficiaries of higher nickel prices?
• As we wrote earlier, nickel demand has good prospects in the medium term amid the rapid EV roll-out
💰Nornilckel will in our view benefit from the strengthening price for nickel, which accounts for more than 35% of the company’s revenue at spot. However, we note that weak car sales create risks for Nornickel's PGMs sales. On our numbers, Nornickel looks interesting at spot, trading at 3.4x 1-y fwd EV/EBITDA and offering an 18% FCF yield
💰Among global nickel producers, we see the most attractive being the Australian company IGO. Nickel accounts for 80% of its revenues at spot, with the potential to increase to 85% after the acquisition of WSA. IGO has a share of a lithium mine, which is to add up to 100% of FY21 (ending June) attr. EBITDA by FY23. On spot prices IGO trades 6x 1-y fwd EV/EBITDA, offering an 11% FCF yield
#nickel #lithium $IGO $GMKN
• As we wrote earlier, nickel demand has good prospects in the medium term amid the rapid EV roll-out
💰Nornilckel will in our view benefit from the strengthening price for nickel, which accounts for more than 35% of the company’s revenue at spot. However, we note that weak car sales create risks for Nornickel's PGMs sales. On our numbers, Nornickel looks interesting at spot, trading at 3.4x 1-y fwd EV/EBITDA and offering an 18% FCF yield
💰Among global nickel producers, we see the most attractive being the Australian company IGO. Nickel accounts for 80% of its revenues at spot, with the potential to increase to 85% after the acquisition of WSA. IGO has a share of a lithium mine, which is to add up to 100% of FY21 (ending June) attr. EBITDA by FY23. On spot prices IGO trades 6x 1-y fwd EV/EBITDA, offering an 11% FCF yield
#nickel #lithium $IGO $GMKN
📌 The World Steel Association (WSA) has revised down its 2022 steel demand growth forecast to 0.4% YoY (1,840mnt)
• Previously, the WSA saw a 2.2% YoY increase in global steel demand in 2022
• The WSA expects China’s steel consumption to be flat YoY and ex-China steel demand to rise 0.7% YoY in 2022
• According to the WSA, global steel demand is to be negatively impacted by geopolitics, surging inflation, tightening of US monetary policy and weak China’s construction activity
• At the same time, the WSA expects world steel demand to rise 2.2% YoY in 2023
#steel
• Previously, the WSA saw a 2.2% YoY increase in global steel demand in 2022
• The WSA expects China’s steel consumption to be flat YoY and ex-China steel demand to rise 0.7% YoY in 2022
• According to the WSA, global steel demand is to be negatively impacted by geopolitics, surging inflation, tightening of US monetary policy and weak China’s construction activity
• At the same time, the WSA expects world steel demand to rise 2.2% YoY in 2023
#steel
📌South Africa’s PGM mining production declined 17% YoY in February, while the country’s gold output was down 9% YoY in February
• The drop in gold output might have been caused by strikes at some Sibanye-Stillwater gold mines (0.7% of global gold supply)
• Meanwhile, PGM output fell, partially due to the rebuild of one of the furnaces at Impala Platinum’s Rustenburg production facility
📈Potentially supportive for gold and PGM prices
❗️We also note short-term risks to South Africa’s PGM output due to possible strikes at some of Sibanye-Stillwater's PGM operations (15% of global platinum supply and 6% of palladium supply)
📝 South Africa accounts for roughly 70% and 34% of platinum and palladium supply, respectively, and for 3% of global gold production
#PGMs #gold
• The drop in gold output might have been caused by strikes at some Sibanye-Stillwater gold mines (0.7% of global gold supply)
• Meanwhile, PGM output fell, partially due to the rebuild of one of the furnaces at Impala Platinum’s Rustenburg production facility
📈Potentially supportive for gold and PGM prices
❗️We also note short-term risks to South Africa’s PGM output due to possible strikes at some of Sibanye-Stillwater's PGM operations (15% of global platinum supply and 6% of palladium supply)
📝 South Africa accounts for roughly 70% and 34% of platinum and palladium supply, respectively, and for 3% of global gold production
#PGMs #gold
📌CISA mills’ daily crude steel output increased 3% in early April, compared with the last ten days of March
• However, this was 2% YoY lower
❗️Even though at the end of March the COVID-19 lockdown in Tangshan (14% of China’s steel output) was lifted, we note risks of further restrictions
#steel #China
• However, this was 2% YoY lower
❗️Even though at the end of March the COVID-19 lockdown in Tangshan (14% of China’s steel output) was lifted, we note risks of further restrictions
#steel #China
🗞Today, China published it's industrial production data for March. See the table above
#statistics #China
#statistics #China
📌China’s crude steel output decreased 6% YoY in March, with the rate of decline decelerating from 10% YoY in 2mo22
• The drop was caused by COVID-19 lockdowns in the country
• Meanwhile, China’s apparent steel consumption was down 6% YoY in March (vs. 9% YoY decline in February)
• Moreover, China’s property sales fell 18% YoY in March (vs. 10% YoY decrease in 2mo22)
❗️We note that China’s steel production and consumption might be further affected by COVID-19 restrictions in the short term. While falling property sales are to negatively affect the country’s demand for industrial metals, monetary policy easing is to support the demand in the medium term
#China #steel #aluminium #copper
• The drop was caused by COVID-19 lockdowns in the country
• Meanwhile, China’s apparent steel consumption was down 6% YoY in March (vs. 9% YoY decline in February)
• Moreover, China’s property sales fell 18% YoY in March (vs. 10% YoY decrease in 2mo22)
❗️We note that China’s steel production and consumption might be further affected by COVID-19 restrictions in the short term. While falling property sales are to negatively affect the country’s demand for industrial metals, monetary policy easing is to support the demand in the medium term
#China #steel #aluminium #copper
📌 The People’s Bank of China has announced a 25bp cut in the reserve requirement ratio, effective from 25 April
• The monetary policy easing is aimed at supporting the country’s aggregate demand amid the COVID-19 outbreak and weakening property sector
❗️Potentially positive for industrial metals demands in China
#global #China #steel #aluminium #copper
• The monetary policy easing is aimed at supporting the country’s aggregate demand amid the COVID-19 outbreak and weakening property sector
❗️Potentially positive for industrial metals demands in China
#global #China #steel #aluminium #copper
💎Mountain Province has reported rough diamond sales of 507kct for USD 67mn in 1Q22. The average realised price of USD 132/ct was up 58% QoQ and 86% YoY
• Meanwhile, the company’s rough diamond output declined 15% YoY to 1.2mnct
• According to the company, the decline in production was caused by a COVID-19 outbreak in early 2022 and the failure of the main crusher at Gahcho Kue. However, the company reported that both issues had been resolved and were not to impact 2Q22 operational results
❗️We note risks to the downstream and, hence, to the upstream diamond demand in the coming months due to weakening consumer sentiment, global economic slowdown and COVID-19 related measures in China
#diamonds
• Meanwhile, the company’s rough diamond output declined 15% YoY to 1.2mnct
• According to the company, the decline in production was caused by a COVID-19 outbreak in early 2022 and the failure of the main crusher at Gahcho Kue. However, the company reported that both issues had been resolved and were not to impact 2Q22 operational results
❗️We note risks to the downstream and, hence, to the upstream diamond demand in the coming months due to weakening consumer sentiment, global economic slowdown and COVID-19 related measures in China
#diamonds
💎 The Indian midstream has entered inventory accumulation territory for the first time since February 2020
• India’s rough diamond net imports increased 40% YoY in March, with the growth rate slightly accelerating from 38% YoY in February, which implies midstream restocking, in our view
• At the same time, India’s polished diamond net exports increased 11% YoY in March, which suggests that downstream demand remained relatively strong during this period
• Meanwhile, India’s lab-grown rough diamond net imports were up 164% YoY in March, with the share of lab-grown net rough imports in natural diamond imports increasing to 10.4% in March (from 7.4% in February)
❗️The continuing midstream restocking is positive for rough diamond prices
📝India accounts for 90% of global polished capacity
#diamonds
• India’s rough diamond net imports increased 40% YoY in March, with the growth rate slightly accelerating from 38% YoY in February, which implies midstream restocking, in our view
• At the same time, India’s polished diamond net exports increased 11% YoY in March, which suggests that downstream demand remained relatively strong during this period
• Meanwhile, India’s lab-grown rough diamond net imports were up 164% YoY in March, with the share of lab-grown net rough imports in natural diamond imports increasing to 10.4% in March (from 7.4% in February)
❗️The continuing midstream restocking is positive for rough diamond prices
📝India accounts for 90% of global polished capacity
#diamonds
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🔋What exactly is Lithium?
📝Lithium is the major component of every Li-ion battery, and EVs currently account for the majority (70%+) of demand. Given the rapid development of this market, we believe demand could advance at a 30% CAGR over the next 5 years. Australia and Chile are the main producers of lithium, accounting for almost 80% of global supply
📈Lithium prices are on a run, with major benchmarks 4-5 times higher since early 2021. Does this price incentivise new projects? Yes. We estimate that large-scale lithium mining projects operate with 70%+ margins and have paybacks of less than 2 years
🚘As the EV market continues its aggressive expansion, fears of a lithium deficit prevail, keeping prices at elevated levels. Though in the long-term, real-terms prices are likely to stabilise at significantly lower levels
#lithium #EV
📝Lithium is the major component of every Li-ion battery, and EVs currently account for the majority (70%+) of demand. Given the rapid development of this market, we believe demand could advance at a 30% CAGR over the next 5 years. Australia and Chile are the main producers of lithium, accounting for almost 80% of global supply
📈Lithium prices are on a run, with major benchmarks 4-5 times higher since early 2021. Does this price incentivise new projects? Yes. We estimate that large-scale lithium mining projects operate with 70%+ margins and have paybacks of less than 2 years
🚘As the EV market continues its aggressive expansion, fears of a lithium deficit prevail, keeping prices at elevated levels. Though in the long-term, real-terms prices are likely to stabilise at significantly lower levels
#lithium #EV