“Buy Ivanka’s Stuff”

For such a long time there had not been much fundamental news in the nickel market, except that prices had, during the course of 2014 and 2015, also moved down to hardly comprehensible lows – along with almost all commodities worldwide – on the basis of no news. Since the 2nd quarter of 2016, there has been a certain amount of recovery. Now, since the start of 2017, reports and events are coming thick and fast, and not just containing pertinent information, but also having a potentially important influence on market developments. Our last edition reported about the softening of the strict nickel export ban in Indonesia, which had a somewhat more negative overtone with regard to further developments.

Only just a few days after this, it became obvious that the Philippines are serious about environmental protection. The temporary closures of mines, because of their serious environmental violations, which had already been imposed in September 2016 have now essentially been confirmed after a subsequent detailed examination. 23 mines have been permanently closed, and a further 5 have been hit with a temporary closure order, the total of which represents 49% of the whole Philippine nickel ore production in 2016. Due to lower prices, a prolonged rainy season and the decreasing yield of mines, ore mining had already sunken by 23% in 2016 from 32 million dry tons to 24.6 million dry tons.

Since the Philippines are the biggest exporter of nickel ore worldwide, the mining closures naturally have an important influence on fundamental nickel supply. These developments in the Philippines have led the research department of the investment and commodity bank, Macquarie, to expect, with some surety, a reduction in supply by the amount of 50,000 mt pure nickel, which is undeniably a significant amount. This would mean that the market deficit model (supply shortfall/surplus demand) – which already takes into account a gradual increase in supply from Indonesia – would fall from the forecasted minus 47,000 mt to minus 97,000 mt.  Basically, the deduction to be made is that the nickel price will be supported this year.

However, the change of policy in Indonesia has already shown just how quickly things can change. As a consequence, Macquarie had already corrected its own nickel forecast downwards, but not even a week later they had been confronted with the question of whether an adjustment on the upside would then be necessary. But there is certain hesitation here, as, according to reports from Reuters, the mines in question have been given the right to appeal against the closures. This means that the closures are not yet final and legally binding. It remains to be seen what happens now. In addition, in both Indonesia and the Philippines the mining lobby is in a strong position, due to its economic and labour market importance, and will try to exert a certain sway on policies.

What influence has all this had on the development of nickel prices in the last few weeks? Overall it can be said from not much to a little positive. In other words: the reports from Indonesia mid-January first of all led to a downward correction in the market, USD 10,350.00/mt to USD 9,350.00/mt. From this low, without any further news, prices recovered to just over USD 10,000.00/mt. Then came the news from the Philippines. This, of course, gave prices a push bringing them over the USD 10,350.00/mt level, and, at the moment of writing this report, to USD 10,750.00/mt. It would seem, and is probably quite justified, that market traders give greater value to the potential influence of the Philippines than to the partial softening of the export ban in Indonesia. By the way, USD 10,740.00/mt is an important resistance point. Should this be substantially broken on the upside, the way would be free for prices over the USD 11,000.00/mt level.

With new facts or alternate facts, there is not a day goes by now without the new President of the USA appearing in newspapers and being discussed everywhere. Others are probably better positioned to judge just what this man is actually allowed to do. But above all, it is the Trump voters who should and have to ask themselves this question. At the moment the populist announcements are subjected to a reality check by government accountability. And a governance solely by decrees, in a country of democracy, is not exactly in accord with the concept of a state ruled by law and constitution.

As suspected, as well as honour, it is all about the wallet, in the broadest meaning of the word. How else can this twitter of Trump be explained: “My daughter Ivanka has been treated so unfairly by @Nordstrom. She is a great person – always pushing me to do the right thing! Terrible!” This was after the department store chain Nordstrom had removed Trump’s daughter’s brand from its fashion collection. And the slightly dubious Trump advisor, Conway, even followed this up in the Fox TV channel by saying: “Buy Ivanka’s stuff”. Ergo, it’s more about marketing strategy or a sales channel.  Such outspokenness and such a dimension is perhaps new for even a commercialised USA, and to repeat, many Trump protest voters should be rubbing their eyes. For whoever doesn’t see a conflict of interest here, then they must be really slow on the uptake.  And it was surely not in the mind of the voters that one establishment be replaced by another. It will be fascinating to see how the USA deals with this new phenomenon.

The fact that banks are presently not the main focal point of media interests should not cover up the reality that the banking sector is in a very difficult structural crisis, just like steel in the late 1970’s. This is not just pertinent to the banks themselves, but also of course, to companies who need the various services of banks. Therefore, the future demands of medium-sized companies in the financial sector, albeit undoubtedly with a subjective tone, should be quickly looked at from their point of view.

Politics and financial sector supervision are more concerned at the moment with topics such as regulation and consumer protection, again in a subjective sense, and are ignoring the idea that now and again other matters are of importance. The customer is the key to success, even with banks. So strategies should not be just based on profit and loss, but also on the needs of companies. Cherry picking should be a thing of the past, otherwise they will not be in a position to provide continual and long-term customer ties.

Trust between customers and banks must also not be permeated by irrelevant undertakings. Banks are acting increasingly as an extended arm of administrative bodies. This cannot be right. Even if banks do not have the best image at the moment, lobbies and politics have to become active here, in order to stop the train which is in motion. In addition, the middle class expects more backbone against regulatory frameworks. Weakened by past events, all regulations are apparently accepted and implemented without criticism. Many regulators go even further than required, putting extra stress on the economy which it is actually supposed to be protecting: key words like EMIR, FATCA, FKAustG and data filters can be mentioned as illustration. At the same time of course, this should not mean that regulation is unnecessary and pointless.

The financial industry has to do more to support the functioning reference rates, such as EURIBOR and LIBOR. Minimum base interest rates of more than/equal to 0% or concepts like the Cost of Funds are not a solution, and they make a closed hedging impossible. It is also a shame that more and more banks, because of liability risks, are withdrawing from the fixing of interest rates and exchange rates. This even applies to the European Central Bank (ECB), which shows just what exaggerations are abounding about in these times.

A further point would be the harmonisation of payment transaction formats, at least in Europe. It is still quite unbelievable as to how, in 2017, it is still possible that in nearly all countries of the EU differing data formats are used. A cross border electronic banking system with European groups of companies, who work with banks in various European countries, still has to adapt its software solutions to the individual needs of that country.

As well as this, the rating models which have been certified by financial supervision, and basically used by all banks, should be checked for their suitability and diversification with varying business models. It is not just in individual cases that, depending on the software, there appear to be distortions over the course of time, which have nothing to do with any economic concept. Financing costs are distorted, and those banks effected systematically take themselves out of the market. Even if this is just a small part of the business models which is not being properly depicted, in a low margin environment it may just depend on this percentage of customers, being on board or staying away, whether profits or losses are being made by the respective bank. So this means that having the most suitable rating models could become existential for banks.

Moreover, it can be observed, especially in some of the international big banks in recent times, that they are working with different departments and products in offering customers and suppliers financial solutions at the same time. This is why conflicts of interest appear, which cannot be tolerated. Lawyers, accountants, business advisors of all kinds and advertising agencies have had standard checks to avoid this for some time, but obviously this has not yet been applied to the banking economy.

Germany and Europe need strong and solid banks. This is why restrictions and regulations can only go as far as the functionality of the banking sector is not endangered and no further. Even with all the efforts to atone for and correct the mistakes of the past, it cannot be in the best interests of the economy. The Anglo-American financial institutes, especially, are rubbing their hands about these distortions in competition. In this sector there is also an outright economic war. And so, not just politics and administrations have to show support for their banking sector, but also companies, and this is in the best interest of preserving competitiveness and independence.