US sanctions lead to a “Burj Khalifa formation” in aluminium and nickel. Inflation and deflation in just one day. Nickel is presently trading at its former levels.
The sanctions politics of the United States are having more and more extraterritorial results. The reintroduction of sanctions against Iran is just one more chapter.
The standardisation of organisational procedures in the working world have a lot to do with Artificial Intelligence (AI). For good and for bad. A lot can certainly be learnt from the experiences.
Tesla wants to reduce the content of cobalt in its batteries. After 2017, the INSG also expects a supply deficit in nickel for 2018. As a trial, the LME is moving the closing rate settlement out of the ring.
As was expected in our last report, the tightening of US sanctions against Russia has also had a significant effect on the nickel price on the London Metal Exchange (LME), just as it had had already with aluminium. At the heart of all the fears was the Russian nickel producer Norilsk Nickel, which represents about 10% of global nickel production. If a look is taken at the nickel chart (a graphic presentation of the nickel price development) of this year, it can almost be said that it depicts the skyline of Dubai. Of course, first and foremost, the many skyscrapers of this science fiction city are fascinating. But amongst all of these several hundreds of metres high buildings, the Burj Khalifa, with its almost 830 metres, the highest building in the world, stands out, so to speak, like a huge needle.
And the chart for nickel appeared just like this (and, not surprisingly by the way, so too did the one for aluminium). On the 19th April 2018, the nickel price shot up to a high of USD 16,690.00/mt. This is an increase of USD 3,990.00/mt or 31.4% over the market opening of USD 12,700.00/mt at the start of the year. But the price movement brought on the comparison to the Burj Khalifa mainly because after the US sanctions had created panic, the ensuing statements and press releases given out by Norilsk Nickel and also by the USA managed to calm down the situation once more.
This led to the speculative air being let out again from prices, and on the same day nickel closed on the exchange at a rate of USD 15,025.00/mt. A few days later fear and euphoria had both flown away completely and prices settled around fundamentally acceptable levels of just below USD 14,000.00/mt. Still, this steep rise proved to show just how possible it is for the commodity markets to move in one direction or the other within a short space of time. And the danger of repetition has by no means gone, quite the opposite, as with all the political uncertainties around, it is now forever present.
The issue of sanctions has actually had some very odd results in the meantime. The United States of America, with its sanction policies, is able to push at will other countries and their businesses. Anyone who has trade dealings with those countries which the USA has sanctioned will be penalised. This means that the USA makes extraterritorial demands, exercising massive influence over other sovereign territories and their economic entities. Just very recently the denunciation of the atomic deal with Iran and the announcement of the reinstatement of sanctions is a good example.
What should the European Union and its business world do now? The Russian sanctions have already clearly shown what happens next. In London and in Switzerland, share packages had to be hectically sold due to the risk of suspension of certain companies trading on the stock exchanges. Companies in which Russians are majority shareholders. The finance industry has long become subject to the regime of US sanctions, and with relatively little resistance. There are hardly any large loan agreements which do not only have to comply with EU and UN sanctions, but also in the meantime are required to comply with US and any other sanctions. The reason is that financial institutions are afraid of losing their rights to be able to take part in US-Dollar trading as punishment for non-compliance with US sanctions.
This is indeed a sharp sword, as most international payments are processed in US-Dollars and are all cleared, hard to believe, via the USA. And the lobby of the finance industry is, after the mistakes of the financial crisis, still relatively weak, and politicians are hardly prepared to support the European banking sector. They should be, however, for this is how the trade war between the USA and Europe and the rest of the world operates. Now the government in Iran is no innocent novice and also policies in Russia are open to some criticism, but whether such an explosive sanction strategy can be justified is another matter. And also, whether anything more could be achieved by other means.
Donald Trump would say yes, but as long as these decisions only affect the USA, then by all means “America First” with all its consequences. But if other nations are forced to be involved in something which they actually do not hold to be correct, then a stop must be put to it. In the long run the USA is standing more and more apart. What if Trump no longer considers Belgium as being a former beautiful city, but now a “shit hole country”. Does he employ sanctions perhaps then too. And what then?
The topic of Artificial Intelligence (AI) has been mentioned here quite often. It could be confirmed that in the true sense of the words, there is no such thing as artificial intelligence yet. It is more a case of an efficient and very complex processing of transactions taking into consideration a multitude of data and dimensions which are supported by manmade software and procedures (programmed by humans) or even carried out to a great extent by self-supporting IT systems. Warnings have been made about the possible consequences of digitalisation going too far. Public debate on this is in full swing.
A look at established procedures and outcomes over the last few years and even decades could help in the debate. Large corporations especially, but also other large organisations, such as government offices, are trying to identify, with the active support of so-called business consultants, methods in their individual businesses which, by using exact specifications and standardisations, should make them more efficient and less prone to mistakes. We have all had our own experience with call centres of banks, telecommunication companies and energy suppliers to know these methods and their sometimes questionable results.
But it is not just in obvious places where there are clearly defined procedures. In the meantime foothold has been gained nearly everywhere. And there is one big “advantage”. With such detailed and exactly described procedures there is hardly any need for qualified employees to carry out tasks, as everything is described so precisely. And the competent people who could once think and act on their own lose this ability over time, for individual thinking and decision making is no longer required if everything is set out already.
Now the dangers of this Human Intelligence are actually the same as those of AI, for the principle is just alike. If there is even the slightest deviation from the standard, then the process is held up and worsened by the fact that no-one is prepared to take a decision because this is not a part of the existing pre-determined options. Also, the risk of being made responsible for having taken a wrong decision is too high. In theory, in such cases, there should be an escalation mechanism which is able to quickly channel the decision making to an authorised level.
Yet employees at the bottom level are often found to be extremely cautious about letting things escalate. For example, every dissatisfied caller or customer who has a problem asks to speak to a supervisor or management. But as a defence mechanism, too little is passed on to higher levels, unless it happens to be a lawyer or a policeman who is calling. Everyone will have had this experience. And what is the conclusion to be made: in all procedures, whether made by humans or by IT, the human, as decision maker, cannot be neutralised. And of course, the picture drawn here has been taken to the extremes.
From a telephone conference call with the electric car manufacturer Tesla, Metal Bulletin has quoted the Chairman and Chief Executive Officer Elon Musk as saying that they have been working on the reduction of the cobalt share in batteries for some years now. Musk is optimistic that a considerable reduction is possible and that cobalt could be omitted almost entirely. Tesla already now, has a lower share of cobalt in its battery cathodes than its competitors. Conversely the share of nickel in Tesla batteries will rise in order to guarantee, or even increase, the energy density required. Of course, Tesla at the moment has a vested interest in promoting itself with positive news items as in recent times it has come under a lot of criticism and ill-wind in regard to declining performance. This information is, however, also in line with previous reports in this publication with regard to the gradual replacement of cobalt by nickel in batteries.
The International Nickel Study Group (INSG), after its Spring conference at the end of April with the member states of nickel producing, consuming and trading countries released a press statement. It can be read that nickel pig iron (NPI) production in China, which had declined in 2016, had made a significant recovery in 2017. It is also expected to increase further in 2018. This is due to the increased availability of nickel ore in Indonesia.
World primary nickel production, in 2016 amounting to 1.989 million tons, increased in 2017 by 4.37% to 2.076 million tons. It is expected that there will be an increase of about 7.27% to 2.227 million tons in 2018. The usage figures from 2016 to 2018 are as follows: 2.033 million tons in 2016 and 2.192 million tons in 2017. The forecast of the INSG for 2018 is 2.344 million tons. This shows that for the years 2017 and 2018, there is a considerable deficit in supply, or rather a surplus in demand of over 100 thousand tons in each case. This should create good fundamental support for the nickel price.
According to the Chief Executive of the Metal Exchange, Matt Chamberlain, the LME is planning to temporarily move the settlement of the daily closing price for the 3 months nickel contract from the exchange floor to its own electronic dealing platform. All other prices and settlement dates, also for nickel, will continue in the usual way. This step is to take place early next year and last for three months. It is designed as a test to determine the practicalities and functional abilities. This is after several exchange members asked the exchange to consider closing ring trading in favour of moving to its electronic trading platform. At the same time, it was also said that the LME would retain its seat in London even after Brexit.
LME (London Metal Exchange)
|LME Official Close (3 month)|
|May 11, 2018|
|Nickel (Ni)||Copper (Cu)||Aluminium (Al)|
|LME stocks in mt|
|April 16, 2018||May 11, 2018||Delta in mt||Delta in %|
|Nickel (Ni)||311.988||311.604||– 384||– 0,12%|
|Copper (Cu)||352.000||281.075||– 70.925||– 20,15%|
|Aluminium (Al)||1.360.275||1.264.250||– 96.025||– 7,06%|