Trade War USA-China dominates markets. The USA is a strong economic nation with the potential to make threats. As well as this, the next election is already being contested.

Other news is only on the periphery. The International Nickel Study Group expects a substantial nickel supply deficit in 2019, but there is no reaction in the market.

Whilst China seems to be following a plan long-term, the actions of the USA are at times very erratic. Yet supporters of the US President applaud him.

But Donald Trump does cause a reaction. Imports from China have been reduced by almost 10%. USA exports to China have fallen by more than 30%.

Whilst the American President is being ridiculed worldwide, it must also be recognised that the mix of open threats and draconian measures have had effect. Yet Trump should not congratulate himself alone in this, as effrontery and pompousness on their own, in most cases, cannot achieve much without the support of financial power and dominant influence. This is, without doubt, the case in the United States of America, as a large economic and financial area, despite slowly losing some of its influence.

With about 300 million consumers with considerable purchasing power, the USA is not only a huge market, but also has control over the most important currency in international trade, and furthermore, has an important military potential. And, of course, China takes all of this seriously. The fact that the Chinese delegation for the negotiations in Washington was headed by the Vice President Liu He, makes this clear. The American administration, as so often seen lately, remains highly unpredictable. In one moment it seems that progress is being made to solve the trade war, with positive reactions from financial markets and analysts, but then in the next moment everything is already passé and threats are made about new trade tariffs on almost all goods.

It is of no bother at all to Donald Trump that he dismisses all protocol of the civilised world, and it is well known that there are quite a few Americans who are in total agreement with his questionable behaviour. The President is already working on the next election trail, trying to ensure his re-election for the next term of office. Nearly everything is being done towards this end. What, however, this President fails to realise, or is perhaps even prepared to risk, is that the economic consequences of his actions serve his country – which he claims to have the best national interest at heart – much less than they damage the Chinese who are claimed as being an economic threat.

Since the introduction of trade tariffs, starting the trade war, Chinese exports have indeed fallen by 9.7%. However, at the same time exports of the USA have fallen threefold of this, by minus 30.4%. Intelligent tactics would not produce these figures. But probably, the President himself is not concerned, as it is not so much about his country but more about him. And what is absolutely fatal is that it does not even seem to concern his supporters at all. Either smaller exclusive circles have been able to personally profit from these developments and are, therefore, prepared to tolerate the harm which is being done to the economy, or the facts do not bother the larger supporter base, not even acknowledging them.

This has always been the case with big populist governments. And, unfortunately, it cannot be expected that reason will soon prevail. It is more likely that these policies will be ongoing, much like Brexit in a not so Great Britain now. What does impede a quick solution is the fact that the US-American economy is faring very well at the moment. Stable high growth, low inflation and low unemployment. Fans of course credit their idol for this. So a political change can only come from within, which will be especially accelerated when the negative effects of Trump’s policies hit the pockets of his supporters.

The Australian Investment Bank, Macquarie, writes that despite an escalation in the trade war, markets do basically expect a solution to the conflict, and markets, in general, continue to trade at respectable levels, despite the threat to global trade and economic growth. One reason for this is that fiscal steps have already been taken by the American Federal Reserve and the People’s Bank of China. In this context, Macquarie speaks of “Living in a M.A.D. World”. M.A.D. being an acronym for “Mutually Assured Destruction”, a doctrine from the times of the Cold War, which at the time held the balance of power and prevented an outbreak of a world war.

This gives rise to the expectation that the extremely negative effects of a total trade war on global economic growth, and on the instigators and those innocently involved, will be so abhorrent that in the end a deal will have to be made after all. However, even if expectations are there that a deal will be completed, in view of recent populist threats by the US Administration, it cannot be discounted that it will take some time before this stage is reached. Probably because the USA overestimates it own present strength of growth.

Macquarie, therefore, thinks it possible that only when there is an acceptance of a total meltdown looming on the horizon, similar to the Euro crisis of 2011/2012, will an agreement be made. Analysts also fear that these high poker stakes have not really been discounted enough in asset prices. In all of this, China, of course, is not the little innocent party and will not simply back off and buckle under. Since there is no other outside help in sight for a quick solution, there just remains the hope of another (positive) unpredictable move from the American President, or some positive influence from the First Lady, for whatever reasons they may both have.

Present developments of commodity prices certainly reflect this. Financial markets are considerably more cautious and gains made from rallies in many markets since the start of the year are eroding. Even LME nickel has been moving more on the downside in the last few days, after weeks of a sideways movement, showing there is uncertainty about future developments. The oil market does not appear to be too much different. Due to macroeconomic insecurities, prices here have slipped to below USD 70 a barrel. And this is even though fundamental data, such as considerable stock reductions in the USA and an escalating nuclear dispute with Iran, would normally suggest a different trend.

So until there are signs of significant changes in the trade war a more negative approach in the markets will continue. Unfortunately, this has had an influence also on LME nickel. Just recently the USD 12,000.00/mt barrier was broken through on the downside, far away from the levels around USD 13,000.00/mt. Most recently the three months future has been trading around USD 11,700.00/mt.

And this is despite LME stocks falling even further. In the meantime levels have fallen below 170,000 tons. The International Nickel Study Group (INSG) recently published revised estimates for the nickel market. The deficit in supply for 2018 has been adjusted up to 146,000 tons and for 2019 the surplus in demand is now estimated to be a substantial 84,000 tons. A further reduction in the reserves of the LME warehouse stocks can, therefore, be expected. This information does, however, remain as just a footnote, as the Commerzbank wrote in its daily briefing on commodities, due to trade war.

It is not surprising that this has caused certain insecurity amongst stainless steel consumers and producers which is regrettable, since the market in the second quarter had improved after a generally expected weaker first quarter. With the support of recovering economic indicators, it would really not be very logical if this year’s movements end already in the summer. But since the ups and downs will probably continue, a renewal of the upwards movement is everything else but ruled out. And the direction of the moves changes now almost in a monthly cycle.

The Chinese are not, however, necessarily responsible, since they particularly follow a medium and long term plan and this very consequently. It also cannot be excluded that China, for tactical reasons, might even bow down to Trump’s rowdy rhetoric in order to give him a fleeting success. China differs from the President of the USA in that it is not concerned about making an impact or taking revenge, but looking at the whole picture and maintaining the political system. Under all circumstances China has to avoid the same fate as the former Soviet Union. And if it helps their own strategies, then they are prepared to work around this.

A good six months ago the London Metal Exchange (LME) published a policy paper about sustainable procurement of commodities. This relates to guidelines set down by the OECD which are to ensure due diligence obligations in the commodity chain, to prevent violations of human rights and the financing of conflicts through the mining and trading of minerals. In its policy paper the LME has set a goal that by the end of 2022 all LME certified brands which can be delivered as an LME contract must comply with the requirements of the OECD.

At the end of April the LME revised this goal for cobalt. Too many cobalt producers did not feel themselves to be in the position of reaching this target in such a short time. Smaller commodity producers saw themselves especially disadvantaged. Also industrial companies have the cobalt problem on the agenda. On the same day Reuters reported that the car manufacturer, BMW, only wants to use cobalt from Australia and Morocco for their batteries of the next generation of electric vehicles. Already a few weeks ago Volkswagen gave a press release about this problem. With the help of block chain technology Volkswagen wishes to increase the efficiency, sustainability and transparency in its supply chain.

China, the world’s biggest emitter of greenhouse gases, is attempting, with its “blue sky” policy, to combat the environmental and health damage caused by emissions from power plants and traffic. The inhabitants of Peking have already at times had to go without heating in order to reduce emissions. The Chinese government is now going a step further. With new incentives the scrap usage quota in the production of steel in arc furnaces should be further increased. At the moment the quota is at 20%.

The Singapore Exchange (SGX) would like to profit from the policy. The SGX announced at the beginning of May that derivatives are the “next big thing” and is planning on their introduction. With the concept of “virtual steel mills”, financial products for iron ore, coking coal and steel scrap are being offered specifically to steel producers and their suppliers. According to William Chin, Head of Commodities with SGX, the Exchange still sees the lack of understanding of traders for effective products as the biggest challenge.

LME (London Metal Exchange)

LME Official Close (3 month)
May 13, 2019
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask


LME stocks in mt
  April 8, 2019 May 13, 2019 Delta in mt Delta in %
Nickel (Ni) 179,328 169,218 – 10,110 – 5.64%
Copper (Cu) 197,550 203,750 + 6,200 + 3.14%
Aluminium (Al) 1,098,925 1,261,450 + 162,525 + 14.79%

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