A Quick Snifter for the People

Nickel prices on the London Metal Exchange (LME) continued in an upwards movement and reached higher levels again with prices around USD 15,800.00/mt. This meant that the price level which had been touched upon in mid April, and even surpassed for a time, has been indirectly confirmed. However, at that time there was a concrete reason for the significant rise, namely the escalation of US American sanctions against Russia and certain oligarchs there connected to commodity companies. The rapid price rise now has developed with relatively little influence. A slight correction followed after the USA finally implemented punitive tariffs on steel and aluminium against Europe and other countries, which led to nickel prices dipping below USD 15,200.00/mt which lasted until 12th June 2018. The day after the high was already again over USD 15,700.00/mt. The decision of the European Central Bank on the 14th June 2018 to leave interest rates at a low level until at least the summer of 2019, however, immediately led once more to a price drop caused by a significantly stronger US Dollar.

This economic link leads us to a point of discussion which is not often talked about in the commodity markets. Particularly in the European stainless steel scrap markets, it is usual that pricing, especially with suppliers, is concluded in the Euro currency. This is, to a certain extent, understandable as EU commodity suppliers usually prefer their revenue to be in the Euro currency so their costs in Euro can be covered. But this is not to say that a currency risk is excluded with these companies.

This is because the commodity prices which form the basis of calculation for each stainless steel scrap component are quoted mainly in US Dollar. So between a purchase in Euro and a sale in Euro, there is, at times, a huge foreign exchange risk. The USD/EUR exchange rate at the time of converting the US Dollar commodity price into a Euro purchasing price is different from the USD/EUR rate when converting the US Dollar commodity into a Euro selling price. So far so good.

Although the USD/EUR exchange rate could certainly have been seen as volatile for many decades now, in comparison to the usual ups and downs of commodity prices, it could be seen as being more or less stable. For some time now this has changed. Since the middle of April 2018, the USD/EUR exchange rate has dropped from 1.24 EUR/USD to the present rate of 1.16 EUR/USD. The responsible-minded companies which have a high exposure to changes in the USD/EUR rate will have taken steps to reduce their risk accordingly, or in other words, they will have hedged their risk.

The very different ways of dealing with this was seen in the pricing structure in the stainless steel scrap market last week. Purchase and sales prices could not be brought in line with one another and at times seemed very inconsistent. This can only be explained by the impact which has just been described, for, those who, in the last few months, had not been USD/EUR currency hedging, could reap the rewards of considerable, but highly speculative, exchange rate windfalls. These were at times translated in sales and purchasing prices so profits could be distributed “amongst market partners” to achieve market share gains . Quite clearly, calculations were no longer being made correctly.

However, this is a very short sighted strategy, for if the exchange rates turned around to the same extent, huge losses would be made. If creditors and customers had only partly profited from the speculative windfalls, it can sometimes quickly happen that creditor and customer at the end have to fully cover any losses which are made. Therefore, questioning a business partner about risk policy is, at times, not just in the interests of the financing banks.

Since the end of May the General Data Protection Regulation (GDPR) is being spoken about everywhere. It may even be nominated as the “non-word” of the year 2018. It is most remarkable just what is expected from companies and individuals still, especially in these times of fervent demands for politics to reduce the levels of bureaucracy. In order to increase information security, politicians had been praised for success in the data scandal regarding Facebook, but now it is slowly being realised that they have gone beyond their goal by quite some way. As a short-term operation the same politicians are now trying to limit the resulting extreme negativity and at the same time respond to the change of opinion of the people and economy. After the summer break, associations and companies, for example, should receive protection from questionable lawyers issuing warning letters.

If sport clubs lose their volunteers because they cannot, or do not, wish to take the personal responsibility for the protection of personal data, due to either lack of know-how or resources, or schools must close down their websites because pupils who may be shown from the back on panorama photos have not given their permission to be photographed, then something has gone massively wrong once more. Then our political decision makers have generated something which can certainly be described as collateral damage. And since the General Data Protection Regulation is ultimately a European harmonised (this is still good) solution, people’s annoyance with the EU will again come to the fore, and this is just what should be avoided. This is certainly not the way to counteract populist movements, quite the opposite.

Yesterday, while at the dentist, even before greetings were made, this author was given a data protection declaration for signature. And email accounts are full of messages requesting confirmation of various data protection declarations. But yet, does anyone actually read through these documents, or are they just inevitably simply passed over if the sender is considered to be more or less reputable? This is the same with the various social media sites such as Facebook, WhatsApp and co. These have already adjusted their data protection statements and necessary consents with the help of their own legal teams and specialised lawyers, so that everything is legally conform and personal data can now be commercially used more than ever.

Those who were actually the target of the increased data protection laws, where higher protection was certainly necessary, have, in the end not been targeted (see above) and all others, who are now burdened with disproportionate administration, have to pay the price. The following could however have been done instead: a) if, after cancellation, unwanted emails are still received, then they are to be reported to a central regulatory office which imposes a penalty of EUR 500.00 per email. The revenue is put into a fund for the promotion of media competence, b) draconian penalties come into effect when data is used improperly, only written approval agreement is valid, a click is not enough and c) people have a right to information from institutions and companies to see exactly just which data is being stored and also the right to have this immediately deleted. For what reason does a medium-sized bakery need a data protection management system?

The above opinion does, however, change nothing about the fact that data protection is a very serious and important matter, and that data everywhere has to be handled responsibly. And in the end, it is not always as bad as the media would sometimes have us believe in their daily headlines.

Up to the middle of July, however, all important matters are overshadowed by the football World Cup, which is a really crucial event. Bread and games or opium for the people. In an interview the Russian author, Vladimir Kaminer was of the opinion “Opium would be a little too strong, better a quick snifter for the people”. Even Trump, in wise foresight, had the meeting with the North Korean leader Kim organised before the start of the World Cup in order to get full attention. At least in Singapore talks were held, results have to follow.

However, it may be little known that Donald Trump also has his finger stuck in football matters. Handelsblatt, reporting about the first mega World Cup in 2026 to be held in the USA, Canada and Mexico, has said that the American President had threatened countries with political consequences if they did not vote in the congress of the Football Federation FIFA for the United American bid. Two questions must surely be asked about this: How do Mexican football fans cross the wall which is planned between the USA and Mexico, and, where is the representative of the US-American Democrats who is in the position of successfully challenging Donald Trump.

With the headline “Six things we learned in Toronto”, Metal Bulletin discusses its own International Nickel Conference in Canada. Firstly, the author of the article says that it was actually a battery conference masquerading as a nickel conference. This is because leading experts estimate that nickel demand in the years up to 2025, because of batteries, should increase to 350,000 – 500,000 tons. In 2018 36,000 tons nickel are expected to be used in battery production. As a second point, it is clear that the global supply deficit in nickel is very real. Figures of the International Nickel Study Group (INSG), and estimates of Norilsk Nickel both show a big deficit. INSG makes an estimation of 117,000 tons for the whole year of 2018, in the first quarter 2018 excess demand is supposed to have been 39,100 tons.

Thirdly, it can be stated that LME nickel warehouse inventories are continually falling. There should, however, still be enough warehouse stocks to more or less fill the constant hole leading up to 2021. Fourthly there is the statement that the stainless steel market has, on the whole, a far stronger influence than expected by many. The increase in stainless steel production in China and Indonesia especially, plays a part here. In fifth place comes the acknowledgement that a nickel price of USD 18,000.00/mt is needed to stimulate new capacity in nickel production, whether it be nickel sulphide projects or the HPAL (high pressure acid leaching) projects. And lastly, in sixth place, it is noted that conference participants were in agreement that it would need more than just a quick hike in prices over the threshold of USD 18,000.00/mt to encourage an increase in capacities. As a representative of Anglo American remarked, prices would have to trade for 18 – 24 months over this level in order to support such investment decisions.

How nickel prices will develop now just before the summer months, with a generally reduced stainless steel production in also a time of maintenance, remains to be seen. Nickel prices are showing themselves to be exceptionally strong at the moment, which must have a lot to with the medium term fantasy regarding demand from the electro mobility sector.