Nickel without momentum. Still to and fro. The most recent correction in accordance with exchange rate developments. And also in line with the ups and downs of populist global politics.

The USA and Turkey are quarrelling. Erdogan attacked head-on by Trump. Draconian measures follow verbal escalations. At the same time, Turkey is not insignificant for the USA and the rest of the world.

The International Stainless Steel Forum has published figures for stainless steel smelting production for Q1 2018. 12.8 million tons were produced. This is a plus of 9.5%. A stainless steel scrap statistic would be nice to have.

Macquarie analyses primary nickel production. Strong increase in the first half year. Nickel pig iron is behind this. Tsingshan now number 2 behind Vale as the biggest nickel producer.

Nickel prices on the London Metal Exchange (LME) are moving, but not really by their own volition. The summer holidays contribute something to the dampening in demand. Initially, during the course of July, nickel firmed up in price to USD 14,120.00/mt, only to then, exactly at the start of the new month, begin a rapid descent. The correction led to a low of USD 13,080.00/mt, probably as a result of weaker than expected purchasing manager figures from China and the general uneasiness in the markets.

Immediately following this, after a little more realism (or hope?) had once again set in, prices were able to recover up to USD 14,145.00/mt. Since the 9th August there has been a clear downswing which has run essentially parallel to the USD/EUR exchange rate development. The cause is probably, once again, a tweet from the US Twitter King, bringing threats of new protectionist foreign trade dirty tricks, also called punitive tariffs. All in the interests of national security, which of course goes without saying.

This time Turkey is the target, already a weakened opponent, with a President who is not too well favoured by many. The quarrel between the USA and Turkey is escalating, verbally and also through actions, so that the nickel price, unsurprisingly, reached a low of USD 12,770.00/mt. This was, however, just about too much of a good thing, or rather a bad thing, so immediately the day after saw a rebound up to USD 13,465.00/mt. At the moment prices are quoted around the USD 13,250.00/mt level.

This continuous up and down is, however, actually quite consistent as, ultimately, it is following the same pattern of global politics which leaves its mark on price movements during the summer months. First attack (for the dedicated voting clientele), then retreat (so as not to be left vulnerable in office), this is the pattern of political populists, whether looking to the west, east, south or north, or even at politicians or parties in one’s own country. But every market trader knows “too much backwards and forwards leads to the poorhouse”, and so this irregular market volatility does not have much meaning.

The US President wants to cause unrest in order to reach his goals and he seems to be successful in this. He is consciously behaving like the proverbial bull in a china shop, and with apparent enjoyment too. The more porcelain is broken, the better. But he does seem to have one big problem and that is being able to judge correctly the consequences of his actions and ranting, directly and indirectly. By attacking Turkey head-on, for example, the global economy is damaged, of which the USA is still part. Turkey, with 80 million inhabitants and a gross domestic product of USD 900 billion, is not any insignificant country, for instance compared to Greece which just about manages USD 200 billion but yet was still able to cause huge disruptions in the markets.

And a bad mood ultimately harms Americans too, who have a comparatively high capital market exposure. And in times of uncertainty, the US-Dollar usually firms up against other currencies, especially those of the emerging markets. A firm dollar and weak currencies of potential purchasers of US-American goods are usually not suitable in boosting exports to eliminate the export weakness of the USA.

If the exchange rate development against the Euro is looked at, at the beginning of the year USD 1.25 was paid for a Euro. Before the escalation of Trump’s attacks on Turkey, the Euro was still at USD 1.1620. But then on 15th August 2018 a temporary low of USD 1.1297 was reached. Since the beginning of the year this is a minus of over 12 cents, or more than 10% per Euro. That is quite something.

But the geostrategic interests of the USA itself should also not be forgotten. The USA still maintains military bases in Turkey. It does not make much sense to snub a NATO partner in front of the whole world, perhaps pushing them into the arms of someone else who may not have all the right intentions. Diplomacy seems to have been forgotten. And finally, the base industries, such as that of steel which the American President actually wanted to strengthen in the interests of his voters, are being brought to their knees with such measures. Perhaps the significantly important Turkish carbon steel production will be harmed by the sanctions and the Lira weakness.

But the effect on price by falling demand for commodities such as iron ore cannot be in the interests of American steel producers either. It stands to reason that the Swedish aluminium producer Gränges announced on the 17th August 2018 that it would not be going ahead with its plans for a joint venture with Mitsubishi Aluminium Co. Ltd. for a production site in North America. Under present conditions it is no longer viably attractive. Is this the creation of employment in a branch of industry has promised by the US President?

And more and more Republicans recognise this, and also institutions are beginning to fight back. The planned military parade has been cancelled by the Pentagon for reasons of cost, or, at least, postponed until next year. The Senate has passed a resolution unanimously (!) which asserts that the media is not the enemy of the American people. In this way the Senate has reacted to the dispute between the President and the American press and emphasised the importance of a free press.

The International Stainless Steel Forum (ISSF) has, in the meantime, released the figures for stainless steel production in the first quarter of 2018. Output has grown by 9.5% opposed to the previous year, reaching 12.8 million tons. Of this, China’s share was 6.5%, the other Asia (without China and South Korea) 4.0%, and Europe even contributed 1.7%. Global growth over the 4th quarter was “just” 1.8%. The surprise is, however, the other producing countries, made up of a colourful mixture comprising statistically of Brazil, Russia, South Africa, South Korea and Indonesia. Their production has increased by a massive 70.2%, 594,000 tons. This is mainly due to the start-up of new steel works in Indonesia, which are developed to use the domestically produced nickel pig iron (NPI), an important commodity made from Indonesian nickel ores.

The analysis of the development of nickel production so far in 2018 made by the commodity and investment bank Macquarie is apt here. According to this, primary nickel production rose by 8.7% to 1.065 million tons in the first six months of the year. The rise is mainly as a result of NPI, produced in China and Indonesia.

NPI production had increased by 31.5%, whereby NPI nowadays stands for a third of primary nickel production overall. Meanwhile the Chinese producer Tsingshan, which also has production sites in Indonesia, has risen to number 2 in global nickel production, with a growth of 29.2% over the first half year of 2017. However, a question mark can most certainly be made about the sustainability and profitability of this growth.

Vale as number 1, in the same time period, had a minus of 9.2%. For the second half of the year, Macquarie does not, however, expect these high growth rates to continue. Fewer new production capacities are starting up in Indonesia, and also the effects of the environmental inspections in China have to be seen. Nevertheless, a deficit on the primary nickel market is expected to continue in the second half of the year. Also some information is given about the availability of stainless steel scrap by Macquarie. But because of the unreliable nature of available statistics, this has to be treated cautiously. The values taken are based on more or less serious models.

It would be desirable, therefore, if the ISSF, which was mentioned earlier, could collect and publish the quantities of stainless steel scrap which are used by its members in order to provide a clearer picture. A data collection from relatively few consumers worldwide is essentially easier than that from numerous suppliers. The figure given by Macquarie for the increase of nickel units in scrap of 3.7% for the first half year of 2018 seems, at least, plausible to a certain extent, even if verification cannot be made.

What, however, is not plausible is why the value of nickel in scrap has been under such pressure in the last few months, when there has been a primary nickel deficit. Bad market share struggles, which influence the price on the purchasing and sales sides, could be an explanation here. Although what is more reprehensible is when a windfall profit is more or less given as a “gift” from an exchange rate development without hedging the exchange rate risk. This is not sustainable and bitter payback will be made when rates move differently. Incidentally, adequate foreign exchange hedging is vital for a professional stainless steel scrap processor.

LME (London Metal Exchange)

LME Official Close (3 month)
August 17, 2018
Nickel (Ni) Copper (Cu) Aluminium (Al)
Official Close
3 Mon.Ask
LME stocks in mt
July 12, 2018 August 17, 2018 Delta in mt Delta in %
Nickel (Ni) 263.730 246.534 – 17.196 – 6,52%
Copper (Cu) 262.750 258.850 – 3.900 – 1,48%
Aluminium (Al) 1.134.600 1.120.250 – 14.350 – 1,27%

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