📌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
🔋Is there any lithium in Russia?
• Russia is a net importer of lithium, with no domestic mining at the moment. In 2020, the country imported about 2% of total world supply, mostly from Chile and Australia. However, recently, countries have suspended exports to Russia
• Given Russia has about 1mnt of lithium metal resources (1% of global resources or 5% of global reserves), we expect the suspension of imports might drive rapid exploration of lithium mines in Russia and help to substitute imports as early as in the medium term
⛏The country already has some refining capacities and mine projects. However, lithium mining projects in Russia, like the Kovyktinskoye field are still at initial stage
#lithium
• Russia is a net importer of lithium, with no domestic mining at the moment. In 2020, the country imported about 2% of total world supply, mostly from Chile and Australia. However, recently, countries have suspended exports to Russia
• Given Russia has about 1mnt of lithium metal resources (1% of global resources or 5% of global reserves), we expect the suspension of imports might drive rapid exploration of lithium mines in Russia and help to substitute imports as early as in the medium term
⛏The country already has some refining capacities and mine projects. However, lithium mining projects in Russia, like the Kovyktinskoye field are still at initial stage
#lithium
📌China’s domestic excavator sales contracted 64% YoY in March, with the rate of decline accelerating from 31% YoY in February
• Meanwhile, the country's total excavator sales (domestic + export) were down 53% YoY in March
• Falling excavator sales indicate weak construction activity, which was further hit by China’s COVID-19 lockdowns
❗️Negative for industrial metals demand
❗️We note, however, that in the short term, China’s construction activity might be supported by the monetary policy easing announced by PBoC
#China #steel #aluminium #copper
• Meanwhile, the country's total excavator sales (domestic + export) were down 53% YoY in March
• Falling excavator sales indicate weak construction activity, which was further hit by China’s COVID-19 lockdowns
❗️Negative for industrial metals demand
❗️We note, however, that in the short term, China’s construction activity might be supported by the monetary policy easing announced by PBoC
#China #steel #aluminium #copper
📈What are the main catalysts of aluminium price growth?
⚡️Aluminium is one of the most energy intensive metals to produce. In normal market conditions (early 2020), aluminium producers spent some 20% of their total costs on energy
• Since the beginning of 2021, aluminium cash costs of the least effective aluminium smelters, which use coal as a source of energy, have almost doubled, mostly due to the 3x growth of coal prices – though also partly on the back of increases in other raw materials prices (Alumina up 67% and anodes 82%)
• As a result, aluminium prices have almost doubled since early 2021, to USD 3,299/t, with input dynamics obviously affecting prices more than the balance of the market. However, even at those levels, marginal cost producers are still loss-making
#aluminium
⚡️Aluminium is one of the most energy intensive metals to produce. In normal market conditions (early 2020), aluminium producers spent some 20% of their total costs on energy
• Since the beginning of 2021, aluminium cash costs of the least effective aluminium smelters, which use coal as a source of energy, have almost doubled, mostly due to the 3x growth of coal prices – though also partly on the back of increases in other raw materials prices (Alumina up 67% and anodes 82%)
• As a result, aluminium prices have almost doubled since early 2021, to USD 3,299/t, with input dynamics obviously affecting prices more than the balance of the market. However, even at those levels, marginal cost producers are still loss-making
#aluminium
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📌China plans to keep 2022 crude steel output below the 2021 level
· However, the exact target was not specified by China’s National Development and Reform Commission (NDRC)
· In 2021, the NDRC planned to cut domestic crude steel output relative to the 2020 level. As a result, China’s crude steel production declined 3% YoY to 1,033mnt in 2021
· Meanwhile, in 1Q22, the country’s crude steel output fell 11% YoY
📈 Positive for seaborne steel margins given China accounts for 53% of global crude steel supply
#China #steel
· However, the exact target was not specified by China’s National Development and Reform Commission (NDRC)
· In 2021, the NDRC planned to cut domestic crude steel output relative to the 2020 level. As a result, China’s crude steel production declined 3% YoY to 1,033mnt in 2021
· Meanwhile, in 1Q22, the country’s crude steel output fell 11% YoY
📈 Positive for seaborne steel margins given China accounts for 53% of global crude steel supply
#China #steel
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📌Russia’s coal exports fell 9% YoY in the period January to mid-April 2022, according to Russia’s Ministry of Energy
· Moreover, in the period late March to mid-April, coal exports declined more than 20%, according to the ministry
📈Potentially supportive for coal prices, as Russia accounts for some 16% global coal exports
#coal
· Moreover, in the period late March to mid-April, coal exports declined more than 20%, according to the ministry
📈Potentially supportive for coal prices, as Russia accounts for some 16% global coal exports
#coal
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📌EU + UK passenger car registrations fell 19% YoY in March
· Moreover, in 1Q22, the passenger car registrations were down 11% YoY
· The decrease was caused by the continuing automotive parts shortage
❗️Negative for PGM demand
#cars
· Moreover, in 1Q22, the passenger car registrations were down 11% YoY
· The decrease was caused by the continuing automotive parts shortage
❗️Negative for PGM demand
#cars
💎Petra Diamonds 1Q22 results
📈Petra Diamonds (PDL LN) reported strong 1Q22 results, with average realised prices increasing 30% QoQ and 93% YoY. According to the company, the LFL price was up 38% at the 4th Tender (in March) than the preceding December 2021 tender. However, the company noted the risk of softening in prices next quarter amid the effect of geopolitical tensions on global economy
⛏Petra’s diamond output increased 18% YoY in 1Q22. Moreover, the company confirmed its production, cost and capex guidance
💰Petra’s net debt decreased USD 45mn (15% FCF yield in 1Q22 only). PDL now trades at 0.9x 1-y fwd EV/EBITDA at spot price, generating about 65% 1-y fwd FCF yield
#diamonds $PDL
📈Petra Diamonds (PDL LN) reported strong 1Q22 results, with average realised prices increasing 30% QoQ and 93% YoY. According to the company, the LFL price was up 38% at the 4th Tender (in March) than the preceding December 2021 tender. However, the company noted the risk of softening in prices next quarter amid the effect of geopolitical tensions on global economy
⛏Petra’s diamond output increased 18% YoY in 1Q22. Moreover, the company confirmed its production, cost and capex guidance
💰Petra’s net debt decreased USD 45mn (15% FCF yield in 1Q22 only). PDL now trades at 0.9x 1-y fwd EV/EBITDA at spot price, generating about 65% 1-y fwd FCF yield
#diamonds $PDL
📌Will the aluminium price stay elevated?
• In our previous post, we noted that the aluminium cash cost mostly depended on the cost of energy. As coal prices might remain elevated, or even go higher, the cash cost of aluminium producers using thermal coal power generation might further increase in the coming months
• However, the fundamentals are not so strong: we expect the aluminium market to be in a small surplus of 2-3% in the near future. The demand from China could decelerate amid the weak consumption of the property market (which contracted 10-50% in 1Q22). Moreover, we also note the downside risk to ex-China aluminium demand amid the economic slowdown and weak demand from the automotive sector. As such, the only supportive factor for the price increase remains the cost of energy
❗️Thus, we see the most attractive aluminium producers as being those that use hydro power or get energy from own coalmines. We will get into those details shortly
#aluminium
• In our previous post, we noted that the aluminium cash cost mostly depended on the cost of energy. As coal prices might remain elevated, or even go higher, the cash cost of aluminium producers using thermal coal power generation might further increase in the coming months
• However, the fundamentals are not so strong: we expect the aluminium market to be in a small surplus of 2-3% in the near future. The demand from China could decelerate amid the weak consumption of the property market (which contracted 10-50% in 1Q22). Moreover, we also note the downside risk to ex-China aluminium demand amid the economic slowdown and weak demand from the automotive sector. As such, the only supportive factor for the price increase remains the cost of energy
❗️Thus, we see the most attractive aluminium producers as being those that use hydro power or get energy from own coalmines. We will get into those details shortly
#aluminium
📈How to play elevated aluminium prices
•Given one of the main drivers for aluminium cash cost growth remains high energy prices, we see producers who work mostly with their own sources of energy or at fixed price – Rusal, Chalco, Norsk Hydro – as most attractive. South32 also looks interesting, as it owns several coking coal mines and can benefit from strong coal prices
💰RUAL looks good, trading at 1.3x 1-y fwd EV/EBITDA and a 50% 1-y fwd FCF yield. Furthermore, its primary source of energy is hydro at fixed contract prices. However, we note geopolitical risks
💰Chalco covers some 51% of its own energy consumption from captive coal mines. We find the stock interesting as it trades at 3.2x EV/EBITDA (vs. 4.5x EV/EBITDA of Norsk Hydro) and offers a 38% FCF yield
💰S32, meanwhile, trades at 2x EV/EBITDA and generates a 20% FCF yield, supported not only by elevated aluminium prices, but strong coking coal prices. This makes the stock attractive
#aluminium $RUAL $Chalco $S32
•Given one of the main drivers for aluminium cash cost growth remains high energy prices, we see producers who work mostly with their own sources of energy or at fixed price – Rusal, Chalco, Norsk Hydro – as most attractive. South32 also looks interesting, as it owns several coking coal mines and can benefit from strong coal prices
💰RUAL looks good, trading at 1.3x 1-y fwd EV/EBITDA and a 50% 1-y fwd FCF yield. Furthermore, its primary source of energy is hydro at fixed contract prices. However, we note geopolitical risks
💰Chalco covers some 51% of its own energy consumption from captive coal mines. We find the stock interesting as it trades at 3.2x EV/EBITDA (vs. 4.5x EV/EBITDA of Norsk Hydro) and offers a 38% FCF yield
💰S32, meanwhile, trades at 2x EV/EBITDA and generates a 20% FCF yield, supported not only by elevated aluminium prices, but strong coking coal prices. This makes the stock attractive
#aluminium $RUAL $Chalco $S32
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📌China has released another tranche of industrial data (see table above)
· According to Platts, China’s apparent steel consumption declined 3.8% YoY in March, which was mainly caused by weak steel demand from the real estate sector. In April, construction activity might be further negatively affected by COVID-19 lockdowns
❗️Given the real estate market accounts for 30% of China’s steel demand, this might pressure the country’s steel consumption in the short term
· China’s authorities have approved an additional 300mnt/a of coal mining capacity this year, according to Bloomberg. Previously, in 2021, China increased its coal production capacity by 300mnt/a in total
❗️Potentially negative for coal prices, given the increase accounts for 7% of China’s coal production
#China #steel #coal
· According to Platts, China’s apparent steel consumption declined 3.8% YoY in March, which was mainly caused by weak steel demand from the real estate sector. In April, construction activity might be further negatively affected by COVID-19 lockdowns
❗️Given the real estate market accounts for 30% of China’s steel demand, this might pressure the country’s steel consumption in the short term
· China’s authorities have approved an additional 300mnt/a of coal mining capacity this year, according to Bloomberg. Previously, in 2021, China increased its coal production capacity by 300mnt/a in total
❗️Potentially negative for coal prices, given the increase accounts for 7% of China’s coal production
#China #steel #coal
☢️How does a nuclear power plant work?
📝Nuclear power plant (NPP) technology has changed little since the 1960s, and works on principles similar to thermal power stations. Energy, generated in the heart of reactor, heats a coolant, which then goes to a steam generator, where it heats water to produce steam, which rotates a turbine to generate electricity
📝The difference to other thermal plants is, of course, the source of energy. In NPPs, the energy is generated via nuclear fission, which splits atoms into smaller nuclei, which in turn split more atoms. As a result of the reaction, several new nuclei appear – plutonium, actinides and uranium isotopes (incl. U233) – and the chain reaction releases great amounts of energy
📝NPP use uranium in the form of fuel pills. In nuclear fuel, the concentration of the U235 nuclear isotope reaches 2-3% (vs. 0.7% in mined uranium)
📝Some products of the reaction - plutonium oxides and uranium U233 - can be reprocessed into REPU and MOX fuel and used in NPPs again
📝Nuclear power plant (NPP) technology has changed little since the 1960s, and works on principles similar to thermal power stations. Energy, generated in the heart of reactor, heats a coolant, which then goes to a steam generator, where it heats water to produce steam, which rotates a turbine to generate electricity
📝The difference to other thermal plants is, of course, the source of energy. In NPPs, the energy is generated via nuclear fission, which splits atoms into smaller nuclei, which in turn split more atoms. As a result of the reaction, several new nuclei appear – plutonium, actinides and uranium isotopes (incl. U233) – and the chain reaction releases great amounts of energy
📝NPP use uranium in the form of fuel pills. In nuclear fuel, the concentration of the U235 nuclear isotope reaches 2-3% (vs. 0.7% in mined uranium)
📝Some products of the reaction - plutonium oxides and uranium U233 - can be reprocessed into REPU and MOX fuel and used in NPPs again
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