Materials Analyst/Strategist, Janus Analysis

Gaius King

Materials Analyst/Strategist

Accelerating Tomorrow’s Independent Research

Boost Research

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Thematic (Sector/Industry)

<ul>
<li>China implements coal import caps specifically targeting Australian producers</li>
<li>Unclear as to how widespread these restrictions will eventually be</li>
<li>Thermal and metallurgical coal exports affected</li>
<li>Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income</li>
<li>Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income</li>
<li>Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP </li>
<li>Actions appear to be a response to blocking Huawei bidding for the 5G network</li>
<li>Recent Chinese cyber-attacks harden Australian Government's resolve</li>
<li>Expect similar Chinese measures (in time) to be applied to other commodities and industries</li>
</ul>


China implements coal import caps specifically targeting Australian producers
Unclear as to how widespread these restrictions will eventually be
Thermal and metallurgical coal exports affected
Impacting ~A$8.4Bn of metallurgical coal exports; or 4.4% of national income
Thermal coal exports affected worth ~A$3.8Bn; or an additional 2% of national income
Collectively, thermal and metallurgical exports equate to ~0.9% of Australian annual GDP 
Actions appear to be a response to blocking Huawei bidding for the 5G network
Recent Chinese cyber-attacks harden Australian Government's resolve
Expect similar Chinese measures (in time) to be applied to other commodities and industries


Confluence of Politics - China Bans Australian Coal Imports (Flash Note)

Over 25-yrs in Global Materials & Soft Commodities

Charles Spencer

Equity Bottom-Up

Angang Steel Co Ltd (H) / Equity Bottom-Up

INVESTMENT VIEW:  The outlook for Angang’s profitability in 2019 is deteriorating quicker than consensus forecasts, we believe.  Chinese steel demand and pricing are forecast to be weak in 2019, yet raw material costs remain high.  We recommend staying short <a href="https://www.smartkarma.com/entities/203" target="_blank" data-smartkarma-citation="entities:203:1">Angang Steel Co Ltd (H) (347 HK)</a> shares with a PT of HK$5.

INVESTMENT VIEW:  The outlook for Angang’s profitability in 2019 is deteriorating quicker than consensus forecasts, we believe.  Chinese steel demand and pricing are forecast to be weak in 2019, yet raw material costs remain high.  We recommend staying short Angang Steel Co Ltd (H) (347 HK) shares with a PT of HK$5.

<ul>
<li>
<a href="https://www.smartkarma.com/entities/23731" target="_blank" data-smartkarma-citation="entities:23731:1">Vale SA (VALE US)</a> have had two major fatal dam-failures in three years</li>
<li>Possible (probable?) design flaw</li>
<li>Expect all Vale's iron ore operations to be technically audited</li>
<li>Substantial Management &amp; Board changes inevitable</li>
<li>Probability that a portion of Vale's existing operations will fail engineering inspection.</li>
<li>Forecast resultant capacity constraints</li>
<li>
<a href="https://www.smartkarma.com/entities/13" target="_blank" data-smartkarma-citation="entities:13:1">Rio Tinto Ltd (RIO AU)</a>,  <a href="https://www.smartkarma.com/entities/147" target="_blank" data-smartkarma-citation="entities:147:1">Bhp Billiton (BHP AU)</a>, <a href="https://www.smartkarma.com/entities/41" target="_blank" data-smartkarma-citation="entities:41:1">Fortescue Metals (FMG AU)</a> to benefit from lost production</li>
</ul>



Vale SA (VALE US) have had two major fatal dam-failures in three years
Possible (probable?) design flaw
Expect all Vale's iron ore operations to be technically audited
Substantial Management &amp; Board changes inevitable
Probability that a portion of Vale's existing operations will fail engineering inspection.
Forecast resultant capacity constraints

Rio Tinto Ltd (RIO AU),  Bhp Billiton (BHP AU), Fortescue Metals (FMG AU) to benefit from lost production


Vale in Trouble - Expect Rio, BHP, FMG to Benefit (Flash Note)

Investment Conclusion: We recommend closing our long-<a href="https://www.smartkarma.com/entities/13" target="_blank" data-smartkarma-citation="entities:13:1">Rio Tinto Ltd (RIO AU)</a>/short-<a href="https://www.smartkarma.com/entities/147" target="_blank" data-smartkarma-citation="entities:147:1">Bhp Billiton (BHP AU)</a> following recent trading updates from both companies which helped to narrow the previous valuation gap we identified in our Aug-18 note: <a href="https://www.smartkarma.com/insights/us-20bn-in-lost-market-cap-looks-hard-to-justify-recommend-long-rio-short-bhp" target="_blank" data-smartkarma-citation="insights:23456">US$20bn in Lost Market Cap Looks Hard to Justify: Recommend Long Rio; Short BHP</a>

Investment Conclusion:  We recommend closing our long-Rio Tinto Ltd (RIO AU)/short-Bhp Billiton (BHP AU) following recent trading updates from both companies which helped to narrow the previous valuation gap we identified in our Aug-18 note: US$20bn in Lost Market Cap Looks Hard to Justify: Recommend Long Rio; Short BHP

RIO & BHP:  Valuation Gap Gone; Closing Long-Rio/Short-BHP

<ul>
<li>Quantifying nuclear statistics with substantial discrepancies</li>
<li>LT contracts &amp; speculative hoarding driving recent 40% spot price increase</li>
<li>Primary/secondary Uranium supplies currently 112% of 2017 demand</li>
<li>Uranium supply deficits extremely unlikely before 2022</li>
<li>Global Uranium demand to fall 25-40% by 2050</li>
<li> Primary Uranium sector LT SELL</li>
</ul>
We have independently audited global nuclear construction statistics in order to determine future Uranium demand.  Although near-term statistics match those in the public domain, long-term demand determined via construction pipeline illustrates substantial discrepancies.  Compiling planned plant construction, operational extensions, nameplate upgrades, versus decommissioning announcements/events, and in many cases, public policy inertia; has led us to believe that despite historical primary supply shortages, global nuclear demand peaked in 2006.
Since plateauing and despite strong Chinese growth, nuclear power generation has fallen &lt;2% over the past two decades, a decline that is predicted to accelerate as a number of developed and developing nations pursue other energy options.
The macro-trend not replacing existing nuclear infrastructure means (dependent on assumptions), according to our calculations, global uranium demand will decrease between 20 to 40% by 2050.
As opposed to signifying a fundamental change in underlying demand, we believe that recent Uranium price increases are the result of producers closing primary operations, and substituting production with purchases on the spot market to meet long-term contract obligations.  In addition, hedge funds are buying physical uranium in order to realise profits on potential future commodity price increases.  Critically, we determine that primary and secondary supplies are more than sufficient to meet forecast demand over the next four to five years; before taking into account substantial existing global uranium stocks, some of which are able to re-enter the spot market at short notice.


Quantifying nuclear statistics with substantial discrepancies
LT contracts &amp; speculative hoarding driving recent 40% spot price increase
Primary/secondary Uranium supplies currently 112% of 2017 demand
Uranium supply deficits extremely unlikely before 2022
Global Uranium demand to fall 25-40% by 2050
 Primary Uranium sector LT SELL

We have independently audited global nuclear construction statistics in order to determine future Uranium demand.  Although near-term statistics match those in the public domain, long-term demand determined via construction pipeline illustrates substantial discrepancies.  Compiling planned plant construction, operational extensions, nameplate upgrades, versus decommissioning announcements/events, and in many cases, public policy inertia; has led us to believe that despite historical primary supply shortages, global nuclear demand peaked in 2006.
Since plateauing and despite strong Chinese growth, nuclear power generation has fallen &lt;2% over the past two decades, a decline that is predicted to accelerate as a number of developed and developing nations pursue other energy options.
The macro-trend not replacing existing nuclear infrastructure means (dependent on assumptions), according to our calculations, global uranium demand will decrease between 20 to 40% by 2050.
As opposed to signifying a fundamental change in underlying demand, we believe that recent Uranium price increases are the result of producers closing primary operations, and substituting production with purchases on the spot market to meet long-term contract obligations.  In addition, hedge funds are buying physical uranium in order to realise profits on potential future commodity price increases.  Critically, we determine that primary and secondary supplies are more than sufficient to meet forecast demand over the next four to five years; before taking into account substantial existing global uranium stocks, some of which are able to re-enter the spot market at short notice.

Uranium - About to Enter Its Own Nuclear Winter

Australia

BHP Group Ltd operates as an international resources company. The Company offers mineral exploration and production, including coal, iron ore, gold, titanium, ferroalloys, nickel, and copper concentrate, as well as petroleum exploration, production, and refining. BHP Group serves customers worldwide.

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BHP Group Ltd (BHP AU)

Confluence of Politics - China Bans Australian Coal Imports (Flash Note)

China implements coal import caps specifically targeting Australian producers Unclear as to how widespread these restrictions will eventually...

Boost Research

Angang Steel: Headwinds Intensify

INVESTMENT VIEW: The outlook for Angang’s profitability in 2019 is deteriorating quicker than consensus forecasts, we believe. Chinese steel...

Charles Spencer

Vale in Trouble - Expect Rio, BHP, FMG to Benefit (Flash Note)

Vale SA (VALE US) have had two major fatal dam-failures in three years Possible (probable?) design flaw Expect all Vale's iron ore operations to...

Boost Research

RIO & BHP: Valuation Gap Gone; Closing Long-Rio/Short-BHP

Investment Conclusion: We recommend closing our long-Rio Tinto Ltd (RIO AU)/short-Bhp Billiton (BHP AU) following recent trading updates from both...

Charles Spencer

Uranium - About to Enter Its Own Nuclear Winter

Quantifying nuclear statistics with substantial discrepancies LT contracts & speculative hoarding driving recent 40% spot...

Boost Research

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