A miss by far is still a miss

The first violinist no longer plays alone
A clear turnaround in regard to the direction of the global economic development cannot yet be called. The early signals for a recovery, which were described in our last edition, have been consolidating, but the impact of the measures is still of a cautious nature. At least the negative trend could be halted even in Germany. But there are still differences of opinion, especially in regard to China. And the communication strategy of the Chinese government body makes it difficult to interpret, since major measures are announced without any details being released, and then new measures are announced again.

However, in this context it is encouraging that the Purchasing Managers’ Index (PMI) for China published on the 5th November 2024 by Caixin/S&P Global rose to 52.0 points from 50.3 points in the previous month. All values over 50 points indicate a growth activity, below this a contraction. The direction of development corresponds to the official PMI, published previously, which shows a return of expansive values in the service and manufacturing sectors. It is now absolutely clear to governments around the world that something has to be urgently done to stimulate the economy. Along with the necessary support measures, this realisation is the first and most important step in improving the situation.

The (structural) problems, and in turn, the challenges are huge. They have been accumulating for years, if not decades. And economic prosperity also ensures creative possibilities, public satisfaction and therefore stability for governments, regardless of whether democratically elected or not. The important significance of a successful economy has been understood nearly everywhere in the world. Only in a not so insignificant capital city in the heart of Central Europe, let us call it Berlin, is a part of government in denial to recognise this.

Also the setting is still being dominated by another “major event”, that of the Presidential elections in the United States of America. Donald Trump now stands as victor. Because of the existing dominating position of the US dollar as the global reserve currency, there has also been quite a lot of uncertainty in the markets in the past weeks and months, depending on who was leading in the polls. This volatility is, however, not an advantage in a time already characterised by numerous fundamental uncertainties.

As always, the US elections went ahead with military precision and a lot of dirt thrown. The result was in the end not as close as the forecasters had expected. However, it has been clear for a long time now that, independent of winner and outcome, the USA has to accept that it no longer plays the first violin on the world stage. In the future there will be two or, in time, maybe even more players who, at least regionally if not beyond, want and can have a say. Therefore, the USA will be forced to concentrate more on itself. This also has the effect that things become uncomfortable, especially for the long-standing allies of the USA. Quite a few things which the big partner had previously dealt with and called the shots will have to be sorted and, above all, self-financed in the future. First and foremost defence has to be mentioned.

In this inhospitable complexity it is difficult to stay on top of things and even to be optimistic, but, as said, without economic prosperity things will get tighter on both sides of the Atlantic. After the elections in the USA and during the coming year, appropriate countermeasures (see above) should provide a clear improvement not only in outlook but also in the actual situation. It is therefore no surprise that base metal prices are on hold at the moment and the price increases, caused by China’s announcement of measures as well as the course of the USA elections and, at times, strong strengthening of the US dollar, have now more or less fizzled out. Nickel is now trading on the London Metal Exchange (LME) at around USD 16,200.00/mt.

EU Ecodesign Regulation: another regulation for the circular economy
In spring 2024, the EU Parliament adopted new rules for sustainability requirements of products, namely the EU Ecodesign Regulation (Ecodesign for Sustainable Products Regulation, in short, ESPR). This is to ensure that products sold in the EU can be optimally reused, repaired, improved and recycled.

The Italian Social Democrat Alessandra Moretti, leading member of the EU Parliament on this subject, stressed the necessity of ending the damaging “take, make, throwaway” mentality. The revised ESPR is a central element of the Green Deal and part of the circular economy package. It should help increase resource efficiency and recycling in the EU in order to achieve the goal of being climate neutral by 2050.

According to Eurostat, about 13 percent of materials were recycled and reused in 2020. The new Ecodesign Regulation updates the 2009 directive of the European Parliament and Council, which concentrated on energy related products, and extends the focus to include efficiency and recyclability. The directive of 2009 led to a ten percent reduction of annual energy consumption on the affected products.

The new law requires the EU Commission to prioritise on resource intensive sectors such as iron, steel, aluminium, textiles, furniture, tyres, cleaning materials, paints, lubricants and chemicals. However, motor vehicles are exempt from the regulation. The new law sees the introduction of digital “product passports”. These will contain information about performance, traceability and conformity requirements and be available via an open web portal, allowing consumers to make an informed purchasing decision. The “battery passport” anchored in the EU Battery Regulation, which will be compulsory from 2027 (see also our publication from November 2023) will act as a blueprint for digital product passports.

To promote recycling, industry stakeholders are requested to annually report the amounts of discarded products and the reasons for their disposal. Two years after implementation, the law forbids the disposal of unsold items of clothing, clothing accessories and shoes. The Commission can extend the list of unsold goods which are not allowed to be destroyed.

For the regulation to be incorporated into EU law, it has to be ratified by the member states. Monique Goyens, Director General of the European Consumer Organisation (BEUC) stressed the necessity of a speedy implementation and the provision of enough resources for the development and application of the new rules through the European Commission and market regulators of the member states. This initiative also shows that the circular economy era is only in its infancy.

According to steel minister India will develop a green steel policy
India is exceeding all expectations with its rapid economic growth, but is at the moment also in a state of transformation. The BIP grew by 8.2% in 2023 and the International Monetary Fund has raised its forecast for 2024 to 7.0%. In line with general economic growth, spending on infrastructure, real estate and in other sectors has intensified which has led to a rapid increase in demand for steel and other raw materials.

In the last few years, India has consolidated its position as a global steel producer and represents about 7% of global production, according to the International Energy Agency (IEA). However, the 140 million tonnes of crude steel which India produced in 2023 are only a relatively small part of the 1,000 million tonnes which China produces. The annual production in India rose from 2022 to 2023 by 11%, and it is expected that the economic growth of the Indian steel industry will help boost this.

Like other expanding economies, India’s growth, especially in steel production, is dependent on an affordable energy supply, which – sadly rather going against the Carbon Footprint – is mainly based on coal and gas. According to the Institute for Energy Economics & Financial Analysis, 12% of domestic emissions in India are from steel production and it is expected that these emissions will double by 2030. Concern about the Indian energy mix is, therefore, growing and has caused the government to look for more sustainable approaches.

As reported by Reuters, India’s steel minister announced at the beginning of September that a directive is to be issued to promote more environmentally friendly steel. According to the Indian daily newspaper, The Economic Times, state procurement of decarbonised steel is also being considered. Even if the announcement does not contain many details, the measures will probably include incentives to change to modern electric arc furnaces and a minimum scrap usage quota. These provisions complement a broader Indian strategy to increase the integration of renewable energies into the energy mix.

Since a rapid growth has been forecasted for the Indian steel sector, a very good opportunity is presented here to already develop sustainable production processes at an early stage of growth and to factor this in investment planning. Considering that the government has set out optimistic goals for decarbonisation and the steel sector causes most emissions, political changes are unavoidable if the Indian government really wants a transformation. Even if this is not in the best interest of the industry, a delay could lead to future problems, since a mature industry with increasing commitment to traditional methods could be more hesitant to change. Some countries and their manufacturers see themselves confronted with this problem at the moment.

China strongly focusing on metal recycling
In the last few decades, the international raw material markets have been influenced by China’s rapid economic rise and the demand which accompanied this rise. The country, which today is the biggest customer for raw materials worldwide, is moving its raw material procurement strategy more and more in the direction of recycling, which could have enormous consequences for the scrap market. One of the goals is also to become less dependent on primary raw material imports.

In the second half of October, therefore, the state owned China Resources Recycling Group Co., Ltd was established, and import restrictions for copper and aluminium scrap were relaxed, as reported by both China Daily and Reuters.

The China Resources Recycling Group was established to act as a central platform in order to increase the availability of recycled raw materials, and to handle tasks such as storage, processing, distribution and also financing and setting standards for steel, electronics and battery scrap. Also on the agenda is the consolidation and merger of many thousands of small recycling companies.

These initiatives pave the way for sourcing high quality secondary materials, which is a complete reversal from the total ban on all waste imports imposed in 2018. The imports, however, have to fulfil strict criteria, suggesting that Beijing is not intent on reprising its previous role as a global waste hub.

The doubling of higher quality materials for recycling, such as steel, aluminium and copper complies with the environmental goals of Beijing, and at the same time also makes raw material procurement more resilient and independent. Recycling promotes the diversification of the supply chain since secondary raw materials can be sourced domestically and regionally, instead of being dependent on a small number of countries and their producers and trading organisations which export (primary) raw materials.