5

Coronavirus is definitely a black swan. Unexpected and with huge consequences. Financial markets are in crisis mode. In addition, Saudi-Arabia and Russia pour more oil onto the fire. A big economic stimulus.

5

Biggest mass hysteria in modern times. Politics must show ability to act. Meanwhile other issues and wars fall into the background. The global corona crisis newly explained. Experience brings wisdom?

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Nickel prices not yet broadly effected. However, effects on supply and demand very probable. Central banks, as always, stand ready. How well prepared are the individual health systems?

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Indonesia has its first corona cases. Steel institute, AISI, demands that Indonesia be taken out of preferential customs tariffs. Planned stainless steel production is 50 fold of its domestic needs.

Corona fears and OPEC send the stock markets on a downward spiral
In the last publication we asked the question about whether the coronavirus is a black swan. And after the developments of recent weeks, this question must be answered with a clear Yes. Financial markets, after remaining very calm, were totally caught wrong footed and the black swan, on the 9th March, turned into a black Monday. Preceding this, over the weekend, due to a quarrel between OPEC and Russia, Saudi-Arabia had even taken the decision to really open the valves on the oil taps, regardless of losses and the falling demand for oil. In the true meaning of the words, both nations were pouring oil onto the fire.

Not only had the stock markets in the Far East, Europe and the USA (in this exact order) collapsed, but also the crude oil market. The oil price losses peaked at 31%, the biggest single day loss since the Gulf war of 1991. Whether this move may work out for Saudi-Arabia waits to be seen. But the world should be grateful to Saudi-Arabia at this time, as the low oil price, and therefore falling energy prices is a massive global economic stimulus package (at a cost to the Saudi economy and of course to the other oil exporting nations).

This shows, once again, what can easily be forgotten, that Saudi-Arabia is the only “swing producer” amongst the oil producing countries. Because of this peculiarity, Saudi-Arabia is able to run oil production up or down as it will, and has also an enormous pricing power. This is also with very low production costs in international comparison. Competitors in Russia and the USA, at an oil price of USD 35 per barrel, must really have started to sweat.

Panic mongering in the media fuels public fears
But let us take a look at the coronavirus again, although hardly anything else can be read about in the media today. This viral infection now governs all public and private life and is the topic of conversation everywhere. The German publicist and journalist, Gabor Steingart, speaks of a medial infection andprobably the biggest mass hysteria seen in the modern day, and even if this is certainly not the view of the majority, on closer examination of the facts, the same conclusion has to be arrived at.

For some first to third class politicians, developments can only come at the right time, as the general panic and dominance in the media distract from existing problems which have yet to be solved and which should have been dealt with by politicians long ago. Also Putin, Assad and Erdogan, as well as Iran, should be happy, for the (proxy) war in Syria is no longer on the world’s radar. Everyone looks after themselves, as always.

But the number of coronavirus infections continues to rise, and along with it the number of corona experts, and there are none too few self-promoters who altruistically point out that despite the danger of the virus being basically low for the more healthy amongst us, it is now time to consider the old and the weak who should be protected. Of course, the old and the weak have to be protected, but it makes one wonder why the old and the weak have not been considered before now: those who live homeless on the streets, those who are refugees living in disgraceful conditions and those who are elderly, living without relatives in apartments and institutions, lonely and hardly or never receiving visitors. It is a very sad and sorry state of affairs if it has to take something like the coronavirus to remind us of Christian and Western values such as charity, compassion and care. This should really already be self-evident.

For the author, the corona crisis, newly explained, can be summarised in the following way: starting in China, although this is not entirely yet conclusive, the “triumphal march” of the corona epidemic began its way around the world. Unhappily, the plan of the Chinese government had been, at first, to try to brush the cases in Wuhan and in the province Hubei at the beginning of December under the carpet. This was in order to prove its competence and power and ability to act at any given time. Unfortunately valuable time was lost at the very beginning in order to try to contain the epidemic and also to isolate the few infections there were then. The consequence was an explosion of infections which completely overburdened the local health system.

Terrible pictures of crowded hospitals, medical personnel at the limits of their resilience, as well as the dead in body bags, went around the world and not just China but the rest of the world was filled with fear and anxiety. Since viruses and bacteria, as well as poisonous gases and radioactivity are invisible dangers, they hold a certain fascination, but also a threat for the emotional and instinct driven Homo sapiens. Consequentially China laid down draconian measures for containment and foreign governments flew their citizens out, so that the general public, world-wide, because of unclear data at the time, had to assume this was a killer virus.

But events were still a long way from Europe and the USA, and appeared just to concentrate on Asia. But this was a fallacy, as the virus, of course, knew no borders, especially in times of globalism and international travel. So it was just a matter of time when the first infections (and deaths) would appear in Europe and the USA. And like all infectious deceases, the main two things which are of help are hygiene and keeping distance, but also the appropriate isolation of those infected.

But just this last thing is made difficult due to the perfidious nature of this novel coronavirus. Most people infected show only very mild symptoms, so it is still possible to take part in day to day affairs with no restrictions. This enables a quick and stronger spread person to person. Normally, with an otherwise known flu infection the person would be lying in bed with a high fever and would never entertain the idea of attending a lengthy Carnival event and then later to more fun and games. In this regard, it is of the utmost importance to stay at home, even if showing only the slightest of symptoms, and to remain at a distance to family members, waiting until a certain amount of incubation time has passed.

Stress test for health systems and economy
What actually can lead to catastrophic conditions is, as was seen in China, when individual health systems and hospitals with intensive care beds and ventilators reach capacity levels. Unfortunately, in Germany privatisation and commercialisation of the health system, with a strict focus on costs, does probably not provide any answers in a similar emergency situation. Hospital beds cannot be optimised the same as working capital. Health and welfare provision belong in state hands, and cannot always be subject to cost and profitability. Hopefully this experience will change the way of thinking.

In that respect, or for this very reason, an uncontrolled contagious outbreak must be avoided at all costs, or at the very least, delayed. With just a mild outbreak, health systems of most countries can cope. All other countries must be supported in their efforts. All this and even the important facts have not yet reached the general public, despite intense reporting by new and old media.

Otherwise, how can it be explained that in a hopefully civilised country like Germany there is panic buying of toilet rolls and long life food items. And this is the big dark side of medial infection. With these partly greatly exaggerated actions out of panic and fear we threaten just those weakest in society, small businesses such as those in the service industry, restaurants, small shops, etc., who, because of a sufficient lack of capital cover, are hardly in a position to survive a loss in turnover for even a few weeks.

The cut in consumption driven by fear can lead to mass bankruptcies, although it is just this consumption which has held the European and German economies above water over the last few years. To make this point clearer, if just a few people stop going out to eat, this can be managed, but if everyone stops eating out, it becomes a catastrophe. Let reason and moderation prevail, in small and big things, and do not let ourselves be caught up in the catastrophe and scandal industry producing fear. We need steps to be taken, but also reassurance.

And one more thing, rightwing populist parties are strangely quiet at the moment. This has nothing to do with piety, but they see their chance. Should it be shown,after a quick containment of the epidemic, that the many steps taken and restrictions imposed and information given were exaggerated, then this would be blamed on the incompetence of the established parties and decision makers. It is not the welcome culture, but the fear culture which in hindsight causes the problems.

The nickel price remained basically untouched by the stock markets crash
And what is happening with nickel? Taking language from the comic books of Asterix and Obelix, a small Gallic village, with the name of Nickel,fights against the trend. Of course, nickel prices on the London Metal Exchange (LME) could not completely escape the general market dive on Black Monday. But the downturn, with a drop in prices from USD 12,800.00/mt to USD 12,300.00/mt, the low of the day, was everything else but shocking. In the meantime, prices have already reached levels again of USD 12,900.00/mt, presently moving around the USD 12,500.00/mt mark. The alloy metal is, therefore, well supported.

Many reasons have been given for this, on both demand and supply side: a continuing relatively robust stainless steel production, as well as the first corona infections in Indonesia, one of the biggest nickel (ore) producers on earth. It must also not be forgotten that nickel prices have not been inflated as much as global stocks have by the ultra easy money policy of central banks, but have generallymaintained somewhat lower levels. This reduces at least some fundamental correction potential.

On the other hand, in regard to commodity imports in China for the months of January and February 2020, figures are now giving a picture, which has mainly stayed off the radar of the media,whichdoes give rise to some hope. Imports were certainly better than had been expected. Crude oil imports rose in the first two months by 5.2% compared to the previous year, iron ore imports were 1.5% higher, coal imports even improved by 33.1% and imports of crude copper increased by 7.5%.

Now it must also be said that special circumstances may be playing a part in these statistics, as well as that some contracts may have already been agreed probably before the outbreak of the coronavirus. The first part of March is also showing some slow down in commodity imports. But it should also not be forgotten that the Chinese national economy covers a country of almost 1.4 billion people. The coronavirus certainly paralysed a large part of the country, but certainly not everywhere. One thing is surely certain, this subject will occupy us for most of 2020.

Even the North American stainless steel industry makes a complaint about Indonesia
The North American Iron and Steel Institute, AISI ,is demanding that Indonesia loses its tariff preferential status with the US American Generalized System of Preference (GPS). Countries which take part in this development programme enjoy lower to even no tariffs on various product groups for imports into the USA. AISI argues that the actions of Indonesia cause such market distortions which could ultimately cause closures of critical business operations involved in stainless steel production, leading to the USA being dependent on foreign sources for steel production.

Although Indonesia only exported 2,100 tons stainless steel into the USA in the first 11 months of 2019, AISI already sees its domestic industry threatened. Indonesia, by 2025, will have an annual stainless steel production of 3.0 to 3.5 million tons, about 50 times higher than the needs of its domestic market. The remainder will be offered on world markets and could then become dangerous for the American industry. This is the fear of the AISI. Excess production mainly takes place in the plants on the island of Sulawesi.

A recently published export statistic shows that Indonesian exporters are not idealists but business people. In December 2019, the last month before the export ban of unrefined nickel ore, 2.47 million tons were exported to China. This was an increase of 82% compared to the same period of the previous year. During the whole of 2019, a total of 53 million tons unrefined nickel ore was mined. During the course of this year, amounts should be approximately halved, even if four plants are going to begin the production of ferronickel and nickel pig iron (NPI). Apparently domestic demand is (still) not too high.

As already mentioned, the Chinese company, Tsingshan has a strong presence in Indonesia. However, some projectsinclude the French mining company Eramet as a joint venture partner. The Weda Bay nickel project, which both companies operate together, should be developed for nickel mining on the island of Halmahera (part of the Maluku island group). This year, 3 million tons nickel ore should be mined, whereby the aim is for a volume of an annual 6 million tons. As well as this, the joint venture wants to produce 30 thousand tons NPI per year.

The economic forecast of the OECD of 2nd March takes into account the dangers an epidemic of the scale of coronavirus has on the development of global growth. The OECD describes two scenarios for global economic growth in times of coronavirus.

In the first and more favourable scenario, the epidemic in China peaks already in the first quarter of 2020, whilst in Europe and North America the spread is contained to only a low number of cases. In this case, global economy for the year would grow by 2.4 percent, according to OECD figures.

In the second scenario, the OECD reckons that the outbreak in Europe and North America will be on similar levels as in China. In this case, global economic growth would be halved, down to a rate of only 1.5 percent. Then a recession in the whole of the Euro zone would certainly be unavoidable.

 

 

LME (London Metal Exchange)

LME Official Close (3 month)
March 12, 2020
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
11,900.00
USD/mt
5,400.00
USD/mt
1,658.00
USD/mt
 
LME stocks in mt
  February 11, 2019 March 12, 2020 Delta in mt Delta in %
Nickel (Ni) 208,722 234,378 + 25,656 + 12.29%
Copper (Cu) 170,000 187,450 + 17,450 + 10.26%
Aluminium (Al) 1,239,800 994,675 – 245,125 – 19.77%

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