It was hard not to hear bad (economic) news and none too few forecasters and business leaders also found themselves infected by the bad mood. The visible reluctance to place orders and make investments can, of course, quickly turn fear into a certainty. Nevertheless, it is the opinion here that this negativity is of macro-economic nature, and, as far as the outlook for stainless steel production is concerned, somewhat exaggerated. This does not mean there is any dispute about an economic slowdown taking place, which may even last a little longer. This is of the general consensus.
But, opinions differ (thankfully) on whether there will be a big crisis or a recession. Slowdown yes, recession no, is more the word. The exception is with market researchers looking at orders, whose pointed statements about trading activity, or flow, with securities and other types of financial transactions is a cause of concern. Quite a few make their money from volatility and the number of transactions, regardless at which level they are at.
A report by news service Bloomberg, to name just one, about the adjustment in short term metal price forecasts made by the investment bank, Goldman Sachs, is worth mentioning here. Until just recently, commodity analysts at Goldman took a strong viewpoint that the market was seeing nickel price development and its further outlook too negatively, causing too great a correction. Now at the start of the year, their expectations have changed considerably. Based on a weakening of economic growth in China in the 4th quarter of 2018 – coupled with continuing poor expectations for the start of 2019, expressed by a weak Chinese Purchasing Manager Index – price targets have been lowered significantly for three, six and twelve months.
From USD 15,000.00/mt, USD 16,000.00/mt and USD 18,000.00/mt, the targets have been drastically lowered to USD 11,000.00/mt, USD 11,500.00/mt and USD 12,500.00/mt. Both China and Indonesia are looking at new HPAL projects which should soften nickel demand in the electro mobility sector. Whether the changes eagerly made by analysts will be rewarded as being correct is yet to be seen but it is somewhat doubtful.
However, more flow, as described above, in their own commodity transactions has certainly been created. And the development of the Chinese economy definitely plays, in the meantime, a very important role, not only in commodity demand and prices. The Chinese government has already committed itself to higher infrastructure spending, tax cuts, and credit facilities. In the past these have proven to be effective. In the meantime, it is the actual timing of a recovery which can be fiercely argued about.
The smouldering trade war between the USA and China is extraordinary in that recently, a certain realism has been detected on both sides. According to press reports, the US administration is working towards a quick solution so that uncertainties in the financial markets, caused by trade war risks, are eased. And the recent bilateral talks held in China have certainly given reason for hope. At least, both sides have reported positive signals. And oil and commodities have already reacted with higher prices.
Choices made in picking the American Executive personnel have to be mentioned here. According to media reports, the almost legendary short lasting press secretary of President Trump, Anthony Scaramucci, has made a career change. He will enter the TV container in the next series of “Big Brother” made by CBS in the US. It’s hard to say who should receive the most sympathy.
But, now seriously again, one thing is really surprising. Despite all the artificial intelligence allegedly around and used, especially in large organisations, such as governments and big companies, actions taken are not always in tune with reality. This also includes the time it takes for facts and assurances to make the rounds. Size is not always an advantage as this can equally mean complexity. The trade war and Brexit are, unfortunately, notorious examples. The whole furore which was originally made at the start will probably not even produce even the slightest bit of improvement, and this at enormous expense. And, probably, present discussions about new creative price models for scrap valuation belong in the same category.
Reductions in LME nickel warehouse stocks have continued into the new year. It is the first time since 2013 that the threshold of 200,000 tons has been broken on the downside. Even if it is often said that care must be taken in interpreting warehouse stocks, this is a further (positive) tiny part of the full picture to look at a normalisation of nickel price development. For the 1st quarter of 2019, representatives of suppliers and consumers, Aperam and Glencore, agreed on a ferro-chrome benchmark price of USD 1.12 per lb. This relates to a drop of 12 US cents, or 9.7%, from the price in the 4th quarter 2018 of USD 1.24 per lb. The lowering of the reference price had been expected, as in the last quarter spot chrome prices had already fallen in both China and Europe.
Shortly before Christmas, the technology entrepreneur and visionary Elon Musk tweeted a photo of the latest SpaceX prototype. The photo shows a space craft, not yet finished, but shape and exterior give an idea about the type of craft which could fly people to Mars in the future. What makes this special is that the prototype’s skin is made of reflective stainless steel. In his tweet, Musk praises the virtues of the material. Stainless steel is especially good at shielding heat. The new skin is preferred in order to combat the complexities the space craft might endure on its journey to Mars.
Until now, engineers had been using skins made of carbon fibre since stainless steel was too heavy. According to Musk, developers have been able to reduce the weight of stainless significantly by using extreme cold, a technique called cryogenics. These findings are similar to the known benefits of cold rolling at room temperature. Cold rolling is done with heavy rollers so that the molecular structure is changed and the crystal size reduced. Cold rolling is slower than warm rolling, but does produce a finer and better quality with a twenty percent higher stability. However, cold rolling is considerably more expensive than warm rolling. SpaceX might perhaps make a test flight in March or April with the new material.
So as not to paint too gloomy a picture, here are some positive alternatives to the concentration of negative news of the last few months. And market developments in the first few days of the new year do seem to show a certain amount of support for this more balanced look. For example, since the beginning of the year nickel has gone up by about USD 800.00/mt. Should this trend continue, the mood spiral which tended on the downside in the second half of 2018 should actually turn around and move up again. This would then be coupled with self-energising effects, such as more investments leading to increased orders.
Even if it is clear that not all global political problems can be solved all at the same time, the theory of probability would indicate that not all challenges have to end in chaos and recession, which was more the viewpoint in the media shortly before year end. What if measures taken by the Chinese government would lead to a strengthening of economic growth in the foreseeable future? What would happen if the European Union would protect itself from dumping imports from other Asian countries as it has successfully done with Chinese excess capacities? And how would markets react if the two squabbers, USA and China, in view of the visibly negative consequences for both economies, come to their economic senses and make compromises on both sides to bring an end to the trade war?
What would happen to the global economy should the US Federal Bank intensify its cautious rhetoric by possibly postponing interest rate hikes in order to positively raise the mood of the markets and business and increase willingness to invest? How would the now slightly less important European economy fare if, after a lot of wrangling, there would be an acceptable Brexit deal, or even perhaps that Great Britain remains in the European Union? What if the fatal assassination of the Mayor of Danzig leads to a wake-up call for change in the culture of political confrontations and communication in Poland?
And what if US President Trump and his Turkish counterpart, Erdogan, at times opponent, other times ally, would, out of deepest conviction, go on a de-escalation course? At least now it should be clear that while an optimistic attitude, helped with a little humour without obscuring the existing business options, cannot put the world to rights, it does help to tackle matters more constructively and, above all, with more vigour than with a defeatist and negative outlook. Defeats and setbacks will always be there, but then so are reactions and decision-making which can lead to improvements. Political and economic disputes do not necessarily automatically end in chaos and recession. They can also develop chances. On this note, a good and successful 2019 is wished. The nickel exchange seems to have started on a good note.
LME (London Metal Exchange)
|LME Official Close (3 month)|
|January 15, 2019|
|Nickel (Ni)||Copper (Cu)||Aluminium (Al)|
|LME stocks in mt|
|December 10, 2018||January 15, 2019||Delta in mt||Delta in %|
|Nickel (Ni)||210,846||197,952||– 12,894||– 6.12%|
|Copper (Cu)||122,500||133,600||+ 11,100||+ 9.06%|
|Aluminium (Al)||1,040,975||1,295,750||+ 254,775||+ 24.48%|