💍US jewellery and watch sales were up 8.5% YoY in March, according to US Department of Commerce data

• The growth rate decelerated from the 28.4% YoY increase in February

❗️At the same time, the University of Michigan US consumer sentiment index rose to 65.2 in April from 59.4 in March. While this is a positive cross-read for April sales, we note the downside risk to the downstream demand amid macro uncertainty

#diamonds

🏆What do you know about gold?
 
🧪Gold is a chemical element (Au), and is one of the precious metals. It is a dense, soft, bright, slightly orange-yellow metal in its pure form. It is one of the least reactive chemical elements and is solid under normal conditions

🪨Gold often occurs as nuggets or grains in rocks, veins, and alluvial deposits. It also occurs in a solid solution series with silver (usually 8-10%), and alloys with copper, palladium, and metals 

🏅Gold has been historically used as a monetary unit and formed the basis for the gold standard before the collapse of the Bretton Woods system in 1971, when the gold standard was abandoned for a fiat currency system. However, it is still one of the most popular defensive assets due to its specific characteristics (including limited supply). The total amount of world gold reserves is 54kt vs. mine supply of some 3.5kt/a and physical demand of approximately 4kt/a. At the same time, above-ground gold stocks are 205kt (with 46% in jewellery)

#gold

🥇How is gold mined?
 
📝High-level, there are 2 ways of gold mining: open-pit (O/P) and underground (U/G). U/G mining has several different methods (e.g. block caving, cut-and-fill etc.) A company selects the method of mining depending on the ore body shape and the depths of occurrence

📝Most commonly, the process of U/G gold mining might be divided into the several steps. First, shafts are drilled (with diameters depending on the selected mining method) and then filled with explosives. The blasted ore is loaded on trucks and transported to a U/G processing centre for primary crushing. After that, ground ore is transported to the surface for further processing (we will dig into the processing technologies in the following post)

📝O/P mining implies stripping instead of underground work; the rest of the mining process is generally similar to U/G

🥇How is gold processed?
 
📝After crushing, the rock is reduced further via grinding

📝The gold in the ground ore is then concentrated by one of two methods: gravity separation (mostly used for oxidized ores) or flotation (for sulphidized)

📝After that, the ore undergoes cyanidation. Cyanide is one of the few compounds able to dissolve gold while being unable to dissolve the minerals that bear gold. Refractory ores, prior to cyanidation, need to be processed either in autoclaves (POX/BIOX methods) or roasted

📝For low-graded oxidized ore, instead of grinding, concentrating, cyanidation, companies sometimes use the heap leach method

•Once the hard rock has been turned into pulp and the gold has been dissolved in the cyanide solution, the gold is removed, using Zn powder/activated carbon

•The final step is gold refining: gold precipitate is heated and the molten material split into 2 parts, with liquefied gold at the bottom and the impurities on top. The extracted gold is melted again and poured into bars

🥇Where does gold come from?
 
📝Global annual gold supply is some 4.8kt or 155mnoz. There are 2 major sources of gold – mines and recycling, which account for some 73% and 27% of world production, respectively

📝Gold mine supply is geographically fragmented: the top 5 producing countries account for 43% of total mine supply (and the top 10 for 64%). In terms of regions, most gold mine supply comes from China, Australia, Russia, North America and South America and South Africa

📝Recycling supply constitutes of jewellery recycling as well as the recycling of electronic appliances, which contain small amounts of gold

📌Arcelor Mittal 1Q22 results

📈Arcelor (MT US) has reported strong 1Q22 results, with EBITDA 11% above consensus and 57% higher YoY. This was mostly driven by the strong performance of MT's NAFTA and Europe segments

💵The company's FCF increased 4x YoY in 1Q22, mostly supported by the higher EBITDA and 14% YoY decline in capex. However, the company kept unchanged its capex guidance for FY22, at USD 4.5bn (up 50% YoY)

💰MT announced a second share buyback programme of USD 1bn, bringing the total 2022 buybacks announced so far to USD 2bn (7% FY22 yield). On spot, the company trades at 0.6x 1-y fwd EV/EBITDA, generating a 53% 1-y fwd FCF yield and 27% 1-y fwd dividend yield

❗️Despite the overall positive results, we note that the rising PPI (up 11.2% YoY and 36.8% YoY in the US and the EU, respectively, in March) might negatively affect the company's future performance 

#steel $MT

🚘EU and UK EV sales rose 24% YoY in 1Q22, with the growth rate accelerating from 15% YoY in 4Q21

• The growth was driven by BEV sales, which increased 61% YoY in 1Q22, while PHEV sales declined 6% YoY in 1Q22

• The share of BEVs in total EV sales slightly declined, to 58%, in 1Q22 from 61% in 4Q21 (vs. 45% in 1Q21)

❗️Positive for the demand for battery metals: nickel, lithium and cobalt

#EV #nickel #lithium #cobalt

🔋CATL battery production capacity might increase 139% to 670GWh from the current level of 280GWh, as per SMM

• This implies a 24% 2021-2025 CAGR

• The potential increase accounts for 55% of 2021 global battery manufacturing capacity and for 43% of provisional EV battery demand in 2025

❗️Growing battery production capacity is positive for the long-term demand for battery metals: nickel, lithium and cobalt

#EV #nickel #lithium #cobalt

🚗💨Internal combustion engine (ICE) car registrations in the EU fell 26% YoY in 1Q22, with the decline rate decelerating from 39% YoY in 4Q21

• Petrol car sales declined 21% YoY in 1Q22 (vs. the 32% YoY drop in 4Q21)

• Diesel car registrations dropped 35% YoY in 1Q22 (vs. the 52% YoY decrease in 4Q21)

❗️Falling ICE car sales are negative for PGM demand

#cars #PGMs

🏅What is the composition of gold demand?
 
💍Physical gold demand comes from four main sources: jewellery, bars and coins, the industrial and the official sectors. Jewellery is the biggest category, accounting for some 50% of the total, mostly comes from China and India
 
🏦Official sector demand depends on the strategies of various central banks and accounts for 10-15% of the total. According to the WGC, CBs highlighted gold’s performance during periods of crisis as the main reason for holding it. As such, the current geopolitical situation might further support CBs demand for gold – but we will get to that next time
 
💰Along with physical, investment demand is also an important factor, which is usually strong during crises. As such, in 2020, investment demand accounted for about 30% of total, driven by COVID-19-related uncertainty. Moreover, in 1Q22 ETFs purchases almost returned to 2020 levels (269t, 12% below 1Q20), fuelled by geopolitical and inflation concerns

#gold

🥇Gold – marginal cost surging amid exhaustion of SA mines and shortage of new supply
 
💰The marginal AIC of gold miners (which are predominantly located in South Africa) has been increasing – by more than 50% – over the last 5 years. We estimate that in 2021, the average AIC of SA miners reached USD 1,650/oz and, given current mining inflation, that it might reach USD 1,900/oz in 2022

• The main drivers of this dramatic increase of marginal costs has been the exhaustion of the existing gold mines in South Africa – which has led to a grade decline, and the share of more expensive underground mining increasing by several times – and the absence of new projects

📝At the moment there is a shortage of expansion and new big projects in the global pipeline, which could potentially support gold production in the short-to-medium term. There are several big greenfields – mainly in Russia and Canada – but with first production only in the 6+ years

#gold

🥇Gold – historically a good play against S&P 500
 
📝Gold used to be perceived as a hedge against economic slowdowns. When the situation on global markets is worsening, investors strive to find a safe heaven; historically, gold has offered such shelter

📌Based on our regression analysis, the gold price has the strongest meaningful negative correlation to S&P 500 1-y fwd P/E multiple

💰The S&P 500 1-y fwd P/E has already declined 6% YTD in 2022 (and is down some 40% from its high around the end of 2020 beginning of 2021). We believe that amid hawkish Fed rhetoric there is further room for a slump in S&P multiples. As such, investment demand for gold might intensify in the coming months, supporting the gold price

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

#statistics #China

🗞China’s finished steel net exports declined 41% YoY in April, according to China Customs

• The decline rate accelerated from 35% YoY in March

• Steel imports were down 19% YoY, while steel exports fell 38% YoY in April

❗️We note that China plans to cut its steel output in 2022 relative to 2021, which might negatively affect the country’s steel net exports

#steel #statistics #China

📌CISA mills’ daily crude steel output increased 5.5% in the last ten days of April, compared with the second ten days of the month

• This was 1.7% YoY lower (vs. the 3.8% YoY decline in the middle of April) and only 2% below last year’s maximum

• According to Metal Expert, market participants expected a recovery in steel demand amid the anticipated easing of COVID-19 restrictions in May, which led to an increase in steel production. However, the restrictions were tightened instead, which might negatively affect steel output in early May, we believe

• Meanwhile, CISA mills’ finished steel inventories declined 8.0% during the period (up 34.9% YoY), which might imply stronger steel demand in late April

#China #steel

📌Peru’s copper output declined 0.5% YoY in March, reversing from the 0.4% YoY increase in February

❗️We note that Peru’s copper production continues to be affected by protests at the Las Bambas copper mine (1.7% of global copper supply)

📝Peru accounts for some 11% of global mine copper supply

#copper

💍According to MasterCard SpendingPulse, preliminary US jewellery sales increased 33% YoY in April

• The growth rate accelerated from 9% YoY in March

• According to MasterCard, jewellery sales were supported by the return to in-store shopping and by consumers refreshing their wardrobe for summer travel

❗️We note, however, that jewellery sales might be negatively affected over the coming months by rising inflation

#diamonds

📌Gold-backed ETFs increased their holdings through April, with net inflows at 33t

• The net inflows declined from 185t in March

• We note that ETF holdings have been significantly increasing for four consecutive months for the first time since 2020

• We believe that gold investment demand is being supported by geopolitical risks and rising inflation

❗️Potentially positive for gold prices

#ETF #gold

📌Turkey’s finished steel production decreased 2.9% YoY in March, with the rate of decline slightly decelerating from 3.3% YoY in February

• According to TCUD, the decrease in production was caused by supply chain disruptions and the energy crisis

• The country’s steel consumption fell 16.8% YoY in March (vs. the 1.9% YoY increase in February). According to Steel Orbis, the decline in steel consumption was partially driven by weak construction demand

• The significant drop in Turkey’s steel consumption led to a 20.7% YoY decrease in steel imports, while steel exports rose 7.2% YoY in April

#steel #Turkey