Nickel recovers, but volatility remains. CEO of the LME moves to head a crypto start-up. Interest rates will rise. The level and speed are being feverishly discussed on both sides of the Atlantic.

In the end it will depend on the social conduct of individuals. Goals will not be reached just with appeals. Accompanying laws and regulations are necessary. A change of perspective helps in persuasion.

The ecological assessment of electro vehicles is also significantly influenced by the ecological footprint of the raw materials. Climate neutral steels could help here, and also with other applications.

Reuters survey expects a softening of the nickel price in 2023. Then the supply deficit should turn into a surplus. This is the viewpoint in January 2022. We shall talk about this again at the end of 2023.

Nickel returns to an upwards trend
After a sharp correction mid January which had pushed the nickel price on the London Metal Exchange (LME) from over USD 24,000.00/mt down to just below the USD 22,000.00/mt mark, a clear recovery started again. The 3 months nickel future is currently trading significantly over USD 23,000.00/mt. After announcements, especially from the American Federal Reserve, regarding quick interest rate hikes to battle the unusually high inflation rates, investors took their profits on the stock and commodity markets. The US-Dollar gained significantly against other currencies.

As a side note, it has been reported that Matthew Chamberlain, CEO (Chief Executive Officer) of the LME is leaving the metal exchange, after about ten years of service, to move to a blockchain start-up company. Adrian Farnham, the head of the LME affiliated clearing house LME Clear, will take charge at the end of April as interim CEO. Chamberlain, as a forthcoming insider in the crypto-world, will then be able to judge if the sometimes quite disdainful accusations of the LME being labelled as a casino are really justified. In any case, the volatility of the asset will remain with him.

In the meantime, a certain familiarisation effect has set in with regard to interest rate increases and a tighter monetary policy. Basically, no one can deny that the departure from negative interest rates and the flood of money from the central banks is, in the medium term – for many varied reasons, also discussed already here (misallocation, pension schemes etc.) – an extremely reasonable macroeconomic measure. Consequently, markets have again turned back to more fundamental concerns. Especially on the pandemic front, positive signs are being seen with a significantly much better outlook, at least for the summer months in the northern hemisphere.

As a result, there is more stimulation for a stronger growth in economy and production, and perhaps even more of a recovery in those sectors which were worst hit by the pandemic. The renewed demand for commodities should support prices well. However, short-term sharp corrections and macroeconomic shocks also have to be anticipated. This applies not just to the pandemic, but also for the further economic development in China and the military tensions along the border of the Ukraine and Russia.

The medium- and long-term positive trend in nickel remains intact. In the short-term, however, a triangular chart formation could anticipate a temporary reversal in trend. On the whole, the volatility has significantly increased. However, metal warehouse stocks on the London Metal Exchange (LME) continue to be unsuitable to be able to assess the actual scarcity of commodities. The availability of scrap is, therefore, a more reliable indicator.

The behaviour of individuals is decisive
Good corporate governance, environmental protection and sustainability as well as the assumption of social responsibility are today’s goals for small, medium and large companies, and this is summarised using the abbreviation ESG – Environment, Social and Governance. Logically, the purely economic pursuit of profit should not be the sole aim of companies in relation to all groups involved. Just a few decades ago, owners and perhaps also management and employees were the centre of interest, but today this circle has been consequently widened. This has already become clear in the evolution of the shareholder value approach to the stakeholder value approach in terms of model theory. Numerous voluntary and obligatory, private and state regulatory frameworks have been established in order to ensure the above mentioned goals and to bring the individual components to life.

Even if binding rules are only gradually being applied to companies of differing sizes, with or without capital market connection, there are today already bigger sub areas which are being covered by existing legal regulatory frameworks. Actually the instinctive interpersonal interaction is central, which should really belong anyway to the genetic mindset of every entrepreneur in an ideal world. Now reality has, however, obviously shown that there are, unfortunately, still some “underhand crooks” about, who from the very beginning, have different ideas and any appeals will always fall on deaf ears. Therefore, legislators and governments have seen no other alternative than to help pave the way by using force and controls to achieve the goals. It is always sad that administrative measures have to be necessary at all for actually an obviously good cause, but what else can be done.

Of course, auditors and certifiers everywhere enjoy the additional work created by these measures, but especially for the smaller and medium-sized enterprises, the extra documentation involved is considerable and quite a burden in view of the limited capacities due to their size. Therefore, legal regulations often provide for a size-dependent relief. This is seen in the German Supply Chain Due Diligence Act which is supposed to prevent or at least minimise human rights violations or environment risks in the supply chain. These goals of overriding importance have no need to be discussed. Their fulfilment is hopefully common sense. In this context, in this author’s view, there are two interesting aspects which have not yet been properly discussed in public: whose viewpoint has been taken and the practical creation of transparency in the supply chain.

First of all, the viewpoint. It is as if taken for granted that the majority of the standards and regulations here are from the perspective of the customer. The customer should ensure compliance with the regulations, not only with himself, but also with his suppliers and primary suppliers and so really cover the whole chain from raw material to end product with the customer. This is obviously a massive challenge as very often the supply and delivery chains cover a long distance.

One service provider for supply chain transparency has reported an example whereby the audit of the supply chain for a pair of trousers from retailer back to the cotton plantation would have taken about 1,000 hours. There is considerable cooperation needed from suppliers and sub-suppliers. The consideration of the legislator is that any refusal to cooperate should ultimately lead to the termination of that particular supply relationship.

For example, if a big sports shoe manufacturer buys materials from various suppliers, and one awkward supplier does not want to disclose his suppliers, then he should be excluded from the trade and replaced by a more cooperative supplier. It is assumed that the market power of the customer and the possibility of substitution through another supplier will make this possible. Besides the latent conflict of goals with free, unhindered competition through the assumed power of the customer, a change in perspective would be helpful in enforcing the issue. What if the law was not called the Supply Chain Due Diligence Act but the Customer Chain Due Diligence Act.

Then it would be the case that the raw material provider, starting in his own sector, would have to “work forward” along the whole delivery chain up to the end customer. Now, presumably, the world would look very different, because the raw material producer would have to demand complete transparency from the sport shoe manufacturer about its activities, including its other suppliers and also about its sales to possibly questionable countries, before a delivery could take place at all. It would then be good to see the faces of the purchasing managers when such questions are put to companies. Needless to say this is just playing around with ideas, but sometimes can help to better understand the challenges which have to be faced. And there are also such customer related systems already in other sectors, such as in the field of banking and financial services. Here it is not called Know-your-Supplier, but Know-your-Customer (KYC).

In view of the required transparency, there is also another aspect, which could be controversial in terms of competition. If the Supply Chain Due Diligence Act implies that the customer not only has to fully take into account his supplier, but also all the other upstream suppliers, then the law has to be interpreted that the immediate supplier has to name all of his suppliers. This may, in many cases, be unproblematic, but then again in some constellations be relevant to competition where goods which are scarce are involved, or patents and secret recipes play a role. In these cases, optimal solutions have to, presumably, still be developed, for if one or the other upstream provider wishes to secure its economic existence and profitability of the individual company, then the normally desired transparency can become a problem.

It is also often a tactic of purchasing managers to try to remove middlemen and brokers from the trading chain in order to increase their own margins, or to lower the purchasing price. These optimisations should really still be left to the market itself so that company data, which is better left protected, is not served up on a silver platter as collateral damage to market partners. It also does not serve the customer if the supplier stops delivering scarce materials from the supply chain and instead delivers to a competitor, such as perhaps to China. It does remain a balancing act to meet all goals and needs in a sensible way. This will probably not work without making compromises.

Incidentally, in this context the hot debate about “social scoring” in China takes on a new meaning. There, people are either awarded or deducted points depending on their social conduct. Accordingly then, these people are either allowed or excluded from certain activities (studying, public transport etc.). Regards from Orwell, and not only data protectionists, but also citizens must cringe. The Transparent Man. Yet this model, if political and other misuse can be ruled out, is not really very illogical and apart from this, also very efficient.

Ultimately, ambiguities in supply chains and other places are not just the responsibility of companies or organisational units, but also of course first and foremost, the responsibility of individuals who are employed by these companies in various employment functions, or the owners of such. If they behave per se in a socially conform manner “according to the 10 Commandments”, then there would be no problem. But as we know, even the Catholic Church itself has issues with its own commandments. In this respect the Chinese system begins with the smallest relevant social “unit”. If “correct” and conform behaviour is ensured, then all the bigger social systems will, theoretically, function better. But then again, these are also just thoughts for reflection and logically not a political recommendation.

Primary raw materials a burden on the environmental footprint of electro-vehicles
World market prices for industrial raw materials have risen quite sharply in the last few months. This includes prices for the battery components nickel, cobalt and lithium.

Electric batteries consist of two electrodes, the anode and cathode. Both are separated by the electrolyte. Lithium ions are stored in the cathode, which shift to the anode during charging. The cathodes are made of nickel, amongst other things, since this has a high specific energy density, which contributes to the long range of electric cars. In addition, cobalt metal ensures that the cathode does not easily overheat.

Battery manufacturers, in developing new models, are trying to maximise the energy density, which in turn means an increased range. They also have to be continually aware of the considerably high raw material prices. They are all united in the objective of using significantly more nickel and less cobalt in the manufacture, as a ton of cobalt costs approximately three times as much as the same amount of nickel.

On top of this, cobalt is in a very difficult supply situation. Up to half of the global reserves of the metal, already considered rare, are located in the Democratic Republic of Congo and about 70% of global cobalt production currently originates from this African state. The fear is not unfounded that the proceeds from cobalt exports go at least in part into the coffers of the warlords.

The trend is to use more nickel in battery production. However, nickel also has the potential to be an ESG primary raw material risk. Indonesia is presently about to become the biggest exporter of nickel of battery quality. But the processing of Indonesian nickel ores is accompanied with a high environmental impact. So far, the question has not been answered about where the production waste will be stored.

ArcelorMittal offers climate-neutral steel
The international steel group, ArcelorMittal will offer classified steel made from recycled and renewable input materials. The move is part of the initiative of the company to achieve the goal of net zero emissions by 2050. As of now, the brand XCarb should embrace all products and activities of the steel producer, which concentrate on achieving demonstrable progress for climate-neutral steel.

CEO Aditya Mittal explains the move is the company’s social responsibility in order to achieve the goals of the Paris Agreement and is therefore determined to lead the transition of the steel sector to carbon neutrality.

Reuters survey sees dampening for 2023
The regular survey of industrial metal analysts with brokers and banks taken by the news platform Reuters was published at the end of January and had the following results, or rather expectations. The consensus, i.e. the average of the expectations of those surveyed, expects the average cash price for the current year of 2022 for the alloy and battery metal nickel to be USD 19,921.00/mt. For 2023, however, a softening of prices is expected. The nickel cash price should then just average USD 18,925.00/mt, and would then only be just over the actual level of the past year 2021. In this time frame, nickel on the LME had reached an average price of USD 18,476.00/mt. The reason for this development is, also in the opinion of the analysts, that there will once more be a supply deficit in physical nickel in 2022 in the amount of 17,000 tons, while the deficit in the following year 2023 will turn into a surplus of 34,000 tons. We shall see.

LME (London Metal Exchange)

LME Official Close (3 month)
February 11, 2022
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
LME stocks in mt
  January 17, 2022 February 11, 2022 Delta in mt Delta in %
Nickel (Ni) 97,038 84,486 – 12,552 – 12.94
Copper (Cu) 92,850 74,100 – 18,750 – 20.19
Aluminium (Al) 892,800 875,250 – 17,550 – 1.97

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