A secret ingredient called “Rusakhtj”

Policy of open borders for trade successful
The upwards trend in nickel remains intact. Almost like in the textbook, after reaching a temporary high of USD 18,500/mt on 21 January 2021, the market then consolidated again at USD 17,465/mt. From this level the rise in nickel continued, also helped by a new confidence and the infinite amount of liquidity from the central banks. Recently, levels around USD 18,600/mt and more were reached.

In one aspect, the corona policy of most countries can be praised. With the exception of commercial activities where there is a high degree of contact, the maxim has been, almost on a concerted global level, to keep economies open as much and as well as possible. This was also in the case of cross-border trade where supply chains were not to be disrupted more than was absolutely necessary. After all, it would be no good to saw off the branch which provides a large part of financing, in the form of taxes, corporate profits and wages and salaries, which countries consume in private and public sectors. Flanked by a considerable increase in national debt a total economic collapse could so far be avoided, as the following performances show.

Stainless steel producers convince with quarterly figures
This is also reflected in the results of companies, which, partly because of a strong economic recovery in the second half of 2020, were significantly better than had been expected at the start of the year. European stainless steel producers were, therefore, able to show good to very good figures for the fourth quarter. Good demand due to the ongoing recovery in consumer markets and also an easing of import pressure from Asia formed the basis for a successful quarter.

As the stainless steel producer Aperam reports in its investor presentation for the 4th quarter 2020, production in the automotive and transport sectors had normalised, with an equally positive expectation component, and also demand for consumer goods was strong, with a continued stable outlook. The construction sector is only fair to middling. A lower order backlog shows more caution here.

In regard to food, health and catering, the picture is mixed. Whilst demand in the food and health sector can be described as normal and, therefore, still good, there is only a very weak interest shown in the catering sector due to the direct effects of Covid-19 on restaurants and tourism. In the sectors of industry, energy and chemicals, demand is also subdued as the crisis has of course also had an effect on willingness to invest. Companies in these segments are, at the moment, prioritising other things.

In this context it is, therefore, more than pleasing that the outlook, or rather, the guidance of the European stainless steel producers is positive. For the first quarter of 2021, Aperam and Outokumpu expect better results than in the fourth quarter of 2020. And also this forecast should not be much different for Acerinox and Acciai Speciali Terni even though their figures are not yet available.

ESG reporting is becoming more important
The reporting on ESG (Environmental Social Governance) is increasingly playing a bigger part in investor presentations of steel producers. The two aforementioned manufacturers set aside at least one page solely for stainless steel scrap. Long neglected, more or less, by the public, sustainable secondary commodities, also in the eyes of investors, are now evidently becoming not only acceptable but also sexy. It is probably no pipe dream that behind the doors of strategy departments of many steel producers, internal and external consultants are making considerations and game plans about an upstream integration of this raw material, which is fundamental to competitiveness and sustainability.

LME publishes discussion paper about market structure
On the 19 January 2021 the London Metal Exchange (LME) presented a discussion paper which suggested various structural changes in order to modernise the exchange along with its clearing house. The aim is to stay “fit for the future”. The last major strategic adjustments had been made based on a concept paper from 2017. The LME still makes it very plain that one of the clear principles of the commodity futures exchange should be to continue to serve the physical markets. Fairness and the provision of sufficient options for users, as well as trading efficiency should also be of importance.

The proposed changes essentially concern four areas: floor trading in the “ring” as well as the reference pricing system, the increase in liquidity, a change to the system of realised variation margin, and finally further considerations on transparency and the behaviour of market participants. As has usually been the custom up to now, the LME has invited users and market participants of the exchange to express their views on the suggestions which have been made.

The relevant deadline for this is the 19 March 2021. In the course of the second quarter 2021 the results of this survey will be published. Details of the discussion paper can be found via the link https://www.lme.com/en-GB/News/LME-Strategic-Pathway#tabIndex=0. By all accounts, some physical market participants and their associations are already uneasy about certain points. We shall continue to report on this.

Australia little impressed by China’s trade policy
Already in previous editions, this newsletter reported on the tensions between China and Australia after the Australian Prime Minister, amongst others, publicly called for an investigation into the origin of the coronavirus. The Chinese, being main buyers of Australian raw materials, reacted angrily and imposed a variety of sanctions on Australian companies.

While Australia still exported 9.46 million tons of coal to China in June of last year, this amount sank to just 687 thousand tons in December, according to an analysis by the news portal Refinitiv. On the whole, December was the strongest month of the year for Australian coal exports with a total of 33.82 million tons. A cold spell in North Asia increased demand for this Australian export hit. In addition, other countries, such as India, Vietnam and Thailand increased their imports of this valuable rock. And finally, on top of this, the price of coal rose significantly in recent months. Since the low in May 2020 price for coal has risen by about 87%.

China did not put any restrictions on urgently needed metal ores, such as iron ore; in recognition of the importance for its domestic industry. Therefore, the government in Canberra is most likely left unimpressed by China’s trade policies.

Tesla has a shortage of battery cells
In the financial report of 27 January 2021 regarding the results of the fourth quarter 2020, Elon Musk, CEO of Tesla, spoke about the difficulties his company has in procuring battery cells. On the question of whether this is the reason why Tesla has not introduced its articulated truck to the market, the CEO replied that a truck needs five times as many battery cells as one of his cars. The selling price of a truck is, however, not five times higher than one of the cars. At the present time, the global supply of battery cells is not enough to be able to introduce such a model.

The visionary continues to say that as well as the already inadequate supply, the prices of nickel and cobalt are creating problems for manufacturers of battery cells. The news portal Fastmarkets added that China’s strong demand for commodities has pushed prices sky high.

European steel recycling association calls for support from the EU
Drastic changes are necessary to achieve the goal of climate neutrality in all value chains by 2050. The EuRIC, the European Recycling Industries’ Confederation, is, therefore, in a press release, calling for more support for metal recycling in Europe.

Metal recycling in the EU is essential to meet the goals for climate set by the Green Deal and the Circular Economy Action Plan. Metals are often important components of products and systems which are essential for a low carbon economy and everyday products. As well as saving significant CO2 emissions, few primary commodities are used. The latter are often obtained outside Europe and are ecologically and socially questionable. It is also then regrettable that the prices for primary commodities which are often obtained outside of Europe, do not cover the external costs for the damage caused by its exploration.

Recycling offers considerable advantages, but there are numerous problems which could be alleviated by law makers. For example, EU legislation provides no incentive for the use of sustainable scrap. For these reasons, according to Mrs Cinzia Vezzosi, President of the EuRIC, it is certainly high time that metal recycling, which is considered the backbone of a modern economy, should be supported. Metal scrap is, even today, still classed as waste under the EU waste law. The classification as a secondary raw material would be more appropriate. Cross-border shipments or permits are much too time-consuming under existing legislation in order to establish a functioning EU wide market long term.

Stainless steel was already used in ancient Persia
According to Wikipedia, stainless steel was invented by Benno Strauss and Eduard Maurer in the laboratories of Friedrich Krupp AG and a patent was registered in 1912. Researchers at the Imperial College London have now discovered that the ancient Persians already had a recipe for chrome steel in the 10th/11th century. In the production, the Persians melted iron in clay pots which had already been heated with coal, and then added the secret ingredient of “Rusakhtj”. This additive was made of chromite ores. Even though the Persian chrome steel had only a chrome content of 1%, this additive gave the alloy positive characteristics.

Nickel producer profits from Reddit hype
In recent weeks there has been a lot of talk about the contest between hedge funds and small investors who have organised together on the online portal Reddit. The investors were briefly able to push the share price of the US American retail chain Gamestop to unimaginable heights, so putting hedge funds under enormous pressure. When buying shares, quite a few of these inexperienced investors confused the ticker symbol of Gamestop, GME.N, with that of the Australian nickel producer GME Resources (Ticker symbol GME.AX). The devil is in the detail or rather in the abbreviation of the stock exchange.

Indonesia increases refined nickel exports by 89%
The Indonesian foreign trade data for 2020 shows that the exports of ferronickel and nickel pig iron reached about 400 thousand tons of nickel in the past year, which is an increase of 89% compared to the previous year. The exports of stainless steel from two steelworks in Chinese ownership in the same time frame rose by 29% to 2.92 million tons, whereby almost half, 47%, was exported to China and 21% to Taiwan. This means that Indonesian stainless steel exports to China have almost tripled (+193%, 1.38 million tons). Commodity experts of Macquarie’s Commodity Comment conclude that in the last quarter alone, Indonesia exported 929 thousand tons stainless steel worldwide. These increases are a direct consequence of the export ban on nickel ores, which was implemented at the beginning of 2020. The export ban had the purpose of generating more value domestically in connection with nickel ores.