5

Solid advance of nickel prices to USD 18,500.00/mt and higher. Recent correction due to technical profit taking and risk off after the drone attacks in Saudi Arabia.

5

Surprisingly Indonesia has brought forward its export ban on nickel ores. China is hit the most as biggest importer. The Philippines are preparing themselves. Mining activities have an environmental aspect too.

5

ECB loosens monetary policy. Their powder has been all shot though. Deposit rates for banks now at minus 0.5%. Bond programme is also running again. There are no returns, political dimensions underestimated.

5

ISSF releases figures for stainless steel production in the 1st quarter 2019. 5.4% more than in the previous quarter, but 2.5% less than in the 1st quarter of 2018. China weaker than usual. EU Commission assesses imports.

The advance in nickel prices continues. Fired on by repeatedly new rumours about the export ban of Indonesian nickel ores, nickel continually reached new highs. In the middle of August, experts were of the opinion that a decision by the Indonesian President, Joko Widodo about the ban would not be made before October, the beginning of his second term of office. A short time later however, the media was reporting that the export ban was being brought forward to 1st January 2020.

On the news that the ban had been brought forward, the 3 months nickel price on the London Metal Exchange (LME) exploded up to USD 18,850.00/mt, a five year high. The news agency Reuters, reporting on this, quoted a high ranking official of the Indonesian Energy and Commodity Ministry, that the export ban would affect all business, regardless of whether sales agreements were still open or not. More recently the nickel price has dropped a little again and is now trading around USD 17,300.00/mt. It is a case, on the one hand, of an overbought technical market situation leading to profit taking, and on the other hand, of market insecurity, of course not just in nickel, after the drone attack on an important oil refinery in Saudi Arabia.

The ban in Indonesia is especially hard for China. It is the biggest processor of ores to nickel pig iron (NPI). NPI is the most important commodity in the production of stainless steel in China. That the export ban is being taken seriously can be seen in the Chinese ports. The enormous amount of 13.33 million tons of nickel ore are being stored there at the moment. Indonesia mines approximately 26% of nickel ores worldwide. Even if the Philippines might be able to compensate for a small part of this, the ban could hit Chinese producers very hard.

Most of the Indonesian mining operators are not even happy about the situation. Up to now the export business to China had been very substantial and profitable. Above all, the profits helped the financing of the expansion of their own NPI production. According to the global research and consultancy group Wood MacKenzie, in 2021 Indonesia could already be in the position of equalling Chinese producers in production of NPI through its own capacities.

Papua New Guinea is also battling with the consequences of the battery boom. Just recently, over 200,000 litres of toxic waste flowed out into the Basamuk Bay, in north east Papua New Guinea. In the meantime, the bay looks as if it has been covered with a reddish brown shroud. The source of this poisonous emission is a factory belonging to Ramu Nickel, a subsidiary of the Chinese Metallurgical Corp of China, which produces nickel sulphate. Whilst official spokespeople of the factory do indeed regret the incident, the environmental damage has far reaching consequences.

The leading English language daily newspaper of Papua New Guinea has reported that during a parliamentary political debate, Peter Yama, the governor of the affected region, announced that a resident of the area had even given birth to a baby with deformed fingers. The government feels compelled to act. Discussions are already taking place about whether the factory should be closed. Unfortunately, this is not a solitary incident. For years now, residents and environmentalists have been complaining about pollution, even though the region is known for its plentiful supply of fish. Environmentalists have even changed the name of the bay into the “Red Sea Papua New Guinea”.

A few months ago, we reported here about the plans of the American space travel company SpaceX, to cover a rocket prototype with a stainless steel coating. However, the prospect of an elegant rocket soon to be setting off with a shiny coating on its way to Mars has unfortunately been denied. The actual prototype, named Starhopper, looks more like a beverage can with side supports. The founder, Elon Musk, has even called himself the father of R2-D2 due to the resemblance to the film character. The company seems to be on the right track though. The last test flight, including landing, was a success.

Despite short-lived hopes that the European Central Bank (ECB) could introduce the urgently needed interest rate turnaround, it has stayed with its policy of soft interest rates. Even worse, on Friday, the 13th of September, another easing of rates was announced. The deposit rate for commercial banks has been dropped again and is now at minus 0.5%. In addition, the bond programme, which had been stopped, has been taken up once again. This now means that both private and institutional savers and investors do not see any returns, and there is not really any pressure or incentive for the states of the Eurozone to introduce urgently needed structural reforms. And one thing is also clear, these measures induce additional insecurity in trade and industry, so the glut of money does not lead to more investments or expenditure which would really help economies recover.

The sad fact has to be, unfortunately, that like with the last guardians of the ECB, economic sanity has finally taken its leave. Really, the primacy of independence from politics should be irrefutable. Donald Trump, the rhetorical leading man in the USA, views the Federal Bank there as already being under his control and is demanding, unashamedly, a zero interest rate policy for the United States of America.

However, it may perhaps not be totally realised everywhere that the present zero and negative interest rate policy is not only an absurd economic madness, but also that it will have massive political consequences. Actually, a Greta Thunberg Mark 2 is needed here for monetary policy, who can then put pressure on the irresponsible individuals and show the right way. The chasm between rich and poor, so often criticised, will of course become greater if a low interest policy is continued to be pursued.

Whilst small and middle income earners and invest their savings almost exclusively in the fixed interest sector but today do not see any return, only a smaller group of wealthy individuals has investment possibilities available, which, because of the negative interest rate, lead to unhealthy artificial price bubbles. But even the institutional investor, who controls big financial assets for private pensions, cannot manage to accrue respectable returns. Therefore, it is foreseeable, that not too far in the future, on the back of a rising old age poverty, there will be competition in distribution, or even a battle, between the generations.

Eventually, by the ECB’s increase of negative interest rates for private and commercial banks to minus 0.5%, they will, in turn, be forced, out of economic necessity, to pass these on, first to the big customers and then to the small ones. In other words, it will not just be the income of individuals being reduced by inflation year on year, but also savings will be reduced by negative interest rates. This will, first and foremost, please the populist parties who have now been presented with a good opportunity by the ECB. They had, recently, begun to run out of ideas after the strongly criticised Eurozone showed itself to be a little more resilient than had been expected, and the subject of migration has been taken up and is being dealt with by the established parties.

Therefore, new ways were being sought to mobilise the masses. One of these is the impending ban on vehicles linked to climate change which is eagerly being pounced upon. But the “erosion” of savings is such an explosive subject, and one which the ECB has, apparently, not considered as such. Should this actually take place, as is feared, then the election results of the populists in recent state elections in Germany might only just be a sample of what is to come. If all goes really badly, then the populists may not even need a coalition partner in order to govern. This would be dreadful. A whole array of innocent individuals cannot be made to pay for the mistakes of state and certain business companies. This will be seen through at some point, and will come back to haunt. So much about the political and democratic dimensions of an interest rate cut by the ECB. It is not too late to change course.

Blockchain technology, known in connection with crypto-currencies such as bitcoin, is also taking commodities in its stride. A consortium comprising of the insurers AON, software developers Gen10, the Dutch Rabobank, the international trading company Concord Resources as well as the warehouse company PGS, has developed a software platform with the name Beyond Commodities, based on blockchain, for structured commodity financing. The first transaction on the platform is expected to take place shortly, then more participants should be won over.

The introduction of a modern, more efficient and accurate system is, of course, to be welcomed and much commercial success is wished for the initiators. But amongst the numerous fintech ideas, as in other markets too, only those will prevail where there is a valid requirement. This could be the case in standardised commodity financing. Bad business ideas or senseless concepts will not be made any better or successful, and certainly not sustainable, by just connecting them up to the technology of the time or by, for example, attaching them with the “green” label.

If, however, with all digitalisation, agility and disruption today – quite independent of the impending project – some simple things still do not work in some organisations, so it’s difficult to think what would happen if a system, as if working by magic, would be run by a man-made artificial intelligence (AI). A short power failure would probably be the smallest dilemma.

The International Stainless Steel Forum (ISSF) has just released statistics for stainless steel smelting production in the first quarter of 2019. A total of 12.5 million tons stainless steel were smelted in the first quarter, an increase of 5.4% over the previous quarter, but in comparison to the first quarter of the previous year, the trend is on the downside. Production was 2.5% lower. The exception in this category is the “other regions”, comprised of a colourful mix of Brazil, Russia, South Africa, South Korea and Indonesia. Here output was higher than the previous quarter by 2%. Even China, used to success and representing more than 50% of global production, could only show an increase of 1.5%. This is also seen in comparison with the first quarter of 2018 when China could “only” increase by 4.4%. The USA, with 12.7% was the leader, followed by the other regions with 11.9% and a pleasing increase of 8.7% in Europe.

According to a report by MEPS Steel News, the European Commission has just completed its assessment of measures to be taken in order to safeguard against the protectionist tariffs of the USA. This is to prevent the EU market from being flooded by products normally reserved for the USA. The European Commission has now made proposals to increase the existing scope, based on all the trade statistics from years before as well as other data. Whilst India and Brazil have been taken off the list of countries which are subject to import quotas for hot rolled stainless steel sheets, it is a different case for Indonesia. In regard to the import of cold and hot rolled stainless steel sheets and strips this country no longer has the status of a developing country. These imports will, in future, be subject to duty and import quotas.

On the whole, the market does doubt the effectiveness of such protectionist measures. In the first quarter of 2019, imports of hot rolled stainless steel from Indonesia rose to be 25% of total imports into the EU. For cold rolled stainless steel, the share was 8%. China’s share of hot rolled stainless steels is, however, still at more than 50% of total imports. The new regulations take effect on the 1st October 2019. It will have to be seen whether they will bring back the urgently needed calm and visibility to the present totally disturbed market.

We are intentionally holding back from any comment about the circus which is taking place on our neighbouring European island. What, however, is happening to one of the oldest democracies of the world should be a warning to us all and should also prompt some humility when other countries and regions are being publically informed that our “western” concept is far better than any other forms. Some doubts could be raised, without being treated as an enemy of the state or classed as being a destructive force. But, even in “Good Old England”, the final word has not been said. “The show must go on!”

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LME (London Metal Exchange)

LME Official Close (3 month)
September 16, 2019
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
17,205.00
USD/mt
5,907.50
USD/mt
1,805.00
USD/mt
 
LME stocks in mt
  August 19, 2019 September 16, 2019 Delta in mt Delta in %
Nickel (Ni) 149,640 164,274 + 14,634 + 9.78%
Copper (Cu) 330,125 301,925 – 28,200 – 8.54%
Aluminium (Al) 962,350 908,425 – 53,925 – 5.60%

Oryx Commodity News

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