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Nickel stable at lower level. US-Dollar weakens. Zero and negative interest rates provide incentives. Nickel is not as far developed as copper and aluminium, or has pre-empted correction.

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Nickel Armageddon. Explanation attempts. Chat service WeChat partly responsible. Focus is on medium term supply situation. Tsingshan expects nickel production for 2023 to increase by 300,000 tons.

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Indonesia reaches a share of 56% in global nickel production. Will electric mobility assert itself? In the meantime, the European Parliament wants to introduce a carbon border adjustment.

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The virus also does what it wants. In science, theories are only valid until they are disproved. More data granularity would be a big step towards better understanding.

Nickel stable at lower levels
The copper price on the London Metal Exchange (LME) moves in spheres which have not been seen in almost a decade. The aluminium future is also on a high level. The increasing recovery in the global economy during the continuing pandemic will certainly play a role, but the speculative interest in these high turnover industrial metals should not be underestimated.

The weakness of the US-dollar against other key currencies at the moment also certainly plays a role, as raw materials quoted in US-dollar are relatively cheaper. Central banks continue to pump huge amounts of cheap money into the markets and so create incentives or market distortions. Negative and zero interest rates make it difficult to find lucrative investment possibilities and so vast flows of money are finding their way into stock and commodity markets.

This, however, does not apply analogously to nickel, as seen in the last price correction. The high levels once seen of USD 50,000.00/mt and more are still far off, despite electric mobility fantasies, and would also certainly not be healthy. The futures market, tending to be relatively tight, is not for weak nerves, nor certainly anything for greenhorns and young speculators. However, the nickel price could clearly stabilise on the lower level, as expected in this publication. Support for the market remains around USD 16,000.00/mt. There have been, therefore, no breaks on the downside. The alloy and battery metal is at the time of writing trading around USD 16,200.00/mt.

Explanation attempts for the correction
As far as subsequent attempts to explain the fall of nickel prices are concerned, of course those in particular who had not seen the previous price rally coming are voicing an opinion. They are now proclaiming that they had already recognised the lack of sustainability of the upwards movement months before. The investment and commodity bank, Macquarie, with the lovely title “Nickel Armageddon – assessing the impact”, is theorising what the causes are for the price to fall by almost 20% from the high.

It is not improbable that a revelation on the chat service WeChat, widespread on smart phones in China, could be a reason, alongside the influence of the considerable and sudden increases of exchange warehouse stocks connected with the Greensill bankruptcy, as previously mentioned here. It is rumoured that the Chinese Indonesian nickel producer, Tsingshan, has signed a contract with the Chinese battery industry for delivery from October this year. What is crucial here is that an additional news item noted that the nickel production of Tsingshan for 2023 is expected to be 1.1 million tons, a massive 300,000 tons higher than the most analysts’ expectations.

Such a significant amount of nickel is bound to have an influence on the medium-term supply situation and automatically on price expectations. According to Macquarie, it has long been known, in this context, in business studies and research that genuine market leaders certainly have a certain amount of pricing flexibility. Through their actions, they are able to push prices one way or the other and so driving competitors to despair. The judgement of whether a price collapse, possibly caused by Tsingshan is in the vested interests of a nickel producer can be left to the reader.

Indonesia continues to expand its position
It is, however, certainly correct to keep an eye on the following developments: According to analysis of Macquarie, Indonesia could have a 56% share of global (primary) nickel supply by 2025, because of its apparently endless amount of ore reserves. No acute supply bottleneck can really be derived taking these quantities into account, despite optimistic estimates in stainless steel production and electro mobility and battery demand. As well as Tsingshan, producers such as Delong and Ningbo Lygend have also long since passed the start-up phase. But at the same time, Chinese figures should always be treated with a certain amount of caution and seldom have “only” a statistical value. Data from some sources are also instruments to achieve something.

It should equally be noted, that too ambitious nickel prices can also have a dampening effect on the use of this metal in battery production. In addition, despite all the present euphoria, it still has to be proven in the long-term, to what extent pure electro mobility is actually the undisputed drive technology of the future, or whether it is only a bridging technology to another long-term drive age. And, the emissions arising from raw materials used for production and other negative external effects are increasingly in the focus of governments, even in Asia. On the 19th April 2021, the Chinese Ministry of Industry announced that it would prepare reports this year on energy consumption in energy intensive industries, so that energy savings and energy efficiency can be promoted. Responsibility and accountability for climate change are clearly felt here.

This discussion can no longer be avoided, even in Indonesia, and no-one will want to lag behind, unless the deliberate decision is taken to become the polluter of the region. The previous strategy of increasing added value and environmental protection suggest otherwise. Should external costs really be internalised in the price mechanism, then the cards could be dealt again. It is perhaps still in the future, but presumably not too far in the distant future as some may believe. Just ten years ago, no one would ever have believed that the party of the “Bündnis 90/The Green Party” would one day be nominating a candidate for the chancellorship.

European Parliament wants to introduce a carbon border adjustment
The EU would like to make imports, manufactured under climate damaging conditions, more expensive. On the 10th March 2021, the European Parliament supported this idea for a carbon border adjustment, but there are still some questions. The mechanism, called the “Carbon Border Adjustment Mechanism” for the taxation of climate damaging imports was created against the background of a Green Deal, and serves to protect climate and also the European economy.

By 2030, European states should lower carbon emissions and other harmful gases by 55% compared to the 1990 levels. With this package of measures for European companies, which will be presented in June 2021, the European Commission runs the danger that climate harming products will be produced outside of the EU in the future, and then be imported.

The worst case scenario could be that international producers, at the same time, undermine the high standards of the EU, jobs would be lost in the EU and emissions of harmful gases would still not be reduced. The European Parliament did decide, however, that this would come into force at the latest in 2023.

The European steel association, EUROFER, also supports the carbon border adjustment. The viewpoint of the association is that only taking such a step can fair competition be achieved in the European steel market. A representative of the association added that a longer transition period offers the possibility for talks on how other regions could follow the path Europe is taking towards decarbonisation.

Fair trade is necessary and desirable
Statistical data for 2020 show that imports for Indonesian stainless steel, as an example, have decreased, due to Covid-19 and the steps taken by the European Union (Safeguard Measures and Anti-Dumping). These measures have evidently had the intended effect of ensuring a global fair trade. And for this reason, European stainless steel producers are finally seeing stronger domestic demand for stainless steel again.

An article for the online magazine marketSTEEL seems more than questionable as it speaks of a steel supply crisis and to alleviate it calls for a free and as flexible as possible access to imports. The demand is no coincidence, since a review of the extension of the protectionist measures introduced by the EU is due on 30.06.2021. The author has fantasised an apparent shortage economy in a market characterised by excess capacities, without however, mentioning that massive surplus capacities have been created in Asia, especially in China, over the last twenty years. The subsequent ruinous competition led to a dramatic drop in prices. It can only be described as gratifying that stainless steel prices have finally risen to a fair level once more after many years of austerity.

This opportunistic protagonist also keeps it quiet that those steel processors, friends of his, regularly did not take the European stainless steel industry into account in the years before the introduction of the necessary protective measures, but favoured competitors from China, Taiwan and Indonesia. Prices for the highly subsidised steels, often produced in conditions harmful to climate and the environment, were held artificially lower and, therefore, people wanted to profit from them. The fact that in the medium term the interests of one’s own economy were undermined was of no concern. As soon as supply chains were broken, due to the pandemic and exorbitant freight rates, the European producers were soon given attention. Now they were suddenly good enough again to fill the gaps.

The virus continues to pose riddles
In line with the German saying “April, April, it does what it wants”, the corona virus does not stick to expectations and definite rules. It had been expected that spring and the higher temperatures would reduce infection rates, but in Germany just the opposite is happening. Despite being in lockdown since November 2020, the incidence rate in Germany is still at a high to rising level, with only a brief interim low. Tentative opening steps have been successively turned around again.

On the other hand, in the American state of Texas, infection rates are falling against all warnings despite opening up and lifting the mask requirement, whilst at the same time in Chile, a country with a vaccination rate of over 40 percent, infections are skyrocketing again. The so-called British mutation – even today attempts are made to discredit nations which had already been seen in the times of the Spanish Flu – which was first feared to be more dangerous, has been confirmed in scientific studies to be more contagious, but not more dangerous. Even the WHO led mission in Wuhan has not been able to rule out the possibility that the virus did come out of a laboratory after all. Nothing specific is known at all.

Data is lacking, theories dominate
So in all honesty theories continue to dominate discussions and not facts. Nothing seems impossible. Therefore, one still has to be aware that humanity, as already discussed here, is on a long distance run. And even the head of the Robert Koch Institute, Lothar Wieler, made it clear in a lecture at the 127th Congress of the German Society for Internal Medicine in Stuttgart that the new coronavirus will not be eradicated. He is quoted in the media as saying that in this respect we have to learn to live with the virus. Indeed, it is not too far-fetched that this is the case and that it can be possible, seeing as mankind is already living with other forms of corona virus.

But this new corona virus is apparently new to the human immune system and is also especially dangerous to certain types of people and age groups. A key to a better understanding would be reliable and sufficiently detailed data. These are, however, even after a year of the pandemic in Germany, still not available, because they are not collected in a structured manner. Yet they could help to understand things much better.

Perhaps then the fears about the unseen threat, deeply rooted in parts of the population could be put more into perspective. It now seems that vaccinations alone will not be successful. As well as the incidence of positive test results and the death rate, a growing number of scientists are demanding that even more meaningful and valid data be collected systematically and in connection with more socio-demographic attributes, such as the number and characteristics of those new patients in hospital because of Covid-19.

LME (London Metal Exchange)

LME Official Close (3 month)
April 22, 2021
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
16,054.00
USD/mt
9,448.00
USD/mt
2,368.50
USD/mt
 
LME stocks in mt
  March 22, 2021 April 22, 2021 Delta in mt Delta in %
Nickel (Ni) 259,308 264,246 + 4,938 + 1.90
Copper (Cu) 113,900 158,975 + 45,075 + 39.57
Aluminium (Al) 1,964,025 1,802,450 – 161,575 – 8.23

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