Nickel cannot hold the level of USD 12,000.00/mt. Reasons are the US-Dollar and profit taking in an overbought market. Big swings in uncharted territory.

Market environment improving gradually. Especially even in the medium term perspective. Global growth potential is there. The financial crisis handbrake on the real economy is loosening.

Battery technology needed for electric vehicles could be a boost for demand in metals. Lithium, nickel, cobalt and graphite are main focus. Demand could multiply in the next few years.

But it is not yet certain that there are not better alternatives. Unless politics dictates technology. What is certain is that Goldman Sachs is losing its Global Head of Commodities.

For some days now the London nickel reference price has been working at the resistance point of USD 12,000.00/mt for the 3 months contract. There has been a constant up and down around this psychological marker, even up to a high of USD 12,380.00/mt. But levels could not be maintained since the market had been strongly overbought in a steep rise. It should to be taken into account though, that on the 15th August the price level was just at USD 10,330.00/mt, so we are talking about an increase of USD 2,000.00/mt, which relates to 20% within one month. Our expectation, as laid out in the last edition, of the upwards trend, which had started the middle of August, not being over, was quite right, just as the statement was that trends seldom run linear.

And so it is not at all surprising that just as this author wants to put pen to paper, prices begin a renewed consolidation phase and rates are trading again around USD 11,200.00/mt. This slowdown can certainly be linked to the (short-term?) strengthening of the US-Dollar but is also a result of the steep price increase which has led to investors taking profits. Additionally weakening economic figures are coming out of China. Although the correction seems quite big, it is not all that surprising as we are in slightly uncharted territory. Due to a lack of relevant historical price points, the support and resistance levels are not obviously apparent. These would normally separate such price movements into smaller logical segments. The next support is only around USD 11,000.00/mt.  Should this, however, be broken effectively on the downside, then from a technical viewpoint a further downwards trend is quite probable. But this is not the scenario just yet.

However, the market situation on the whole does seem to have improved considerably. In the last few months there has been more interest shown by investors in commodities, especially in the metals markets and there has to be a reason for this seeing as investors’ trading patterns are usually based on rational considerations, or on that what investors consider as rational. This could, however, sometimes include many different things. It is though, not a deciding factor that fundamentally nothing much has changed in the last few weeks. The markets tend to trade more on what the future will look like and what expectations will be. And by taking a closer look, there is a lot going on here.

Activities in total in the global economy have slowly reached levels of before the financial crisis, or it can even be said to have bettered these levels slightly. In some developed countries, such as the USA and Germany, this point has long been reached and crossed, but in the emerging markets it has taken nearly a decade to reach the development stage of pre-financial crisis. The consequences of the financial crisis have, unfortunately, been very detrimental to these countries. In addition, the policies of cheap money with zero and negative interest rates has led to a widespread loss of savers, but at the same time the cleverly concerted policies of leading central banks overall probably avoided an even worse situation.

At this moment in time then, many individuals and businesses are becoming relatively more assured about what the future may bring. People and markets are once more gaining confidence in what is going on. Companies are investing again and, after a long decline, trade volumes are climbing once more. This does not just pertain to developed countries, but also in the meantime to emerging markets. And exactly in these markets, there are, without doubt, still a lot of consumers who would like to better their standard of living and improve their quality of life. And this creates demand, demand for goods and services, and also demand for commodities. Undoubtedly a growth potential here for a number of decades. And this despite the (geo) political uncertainties in the world.

Central banks will also, step by step, introduce a turnaround in interest rates, some earlier, some later, and signs of this can already be seen. But since changes to a restrictive central bank policy tend to be made cautiously and slowly, the continuation at the moment of easy money is leading to a further stimulus in the economy. Money is now, at least partially, reaching the real economy. This had been hoped for in vain over the last few years due to expansive monetary policies. This are also signs of normalisation and a return to the old growth path.

But after this very global economic outlook on a macro level, other details are changing which, in the medium term, could positively influence demand for commodities. At the moment in some parts of the media, there is a lot of intense discussion about how much influence electromobility will have on demand for metals. Here battery technology especially plays a big part, as potentially special metals would be in even greater demand. And this demand could change today’s market equilibrium and cause prices to rise. This is because we are talking about a basic short term deficit in supply which would have to be filled. And nickel, along with lithium, cobalt and graphite, are included amongst those metals which would be of concern.

The news agency, Bloomberg, has written about the increasing demand for electric vehicles which has not yet started to effect the nickel market, quoting here representatives of mining companies and their own analysts. The demand for nickel and also for the other metals required could massively increase in the coming years. This is being strengthened by the fact that certain countries, such as China, Great Britain and France, already have concrete plans to ban vehicles with fossil engines, which use petrol or diesel, within certain time scales. And more countries could follow. Demand for nickel in the production of lithium-ion batteries could increase from 5,200 tons in 2016 to more than 190,000 tons up to 2030.

Indeed, nickel for battery production will be certainly needed in other forms, not just for the production of stainless steels and alloys, which is what the main use of primary nickel is today. The Canadian nickel producer, Sherritt International, is considering building a factory for the production of nickel sulphate. This is a powdery type of substance which is especially suited for the production of batteries. Should things happen as hoped for by some and as predicted by others, then there will be structural changes in demand for metals and these could lead to some shortages. This type of thing was witnessed in the years leading up to 2007 for example, when there were considerable structural shortages in supply running parallel to a strong growth in demand in China.

But a warning must be made that in all the euphoria about electromobility, a check has to be made about the realities and facts. A news programme of the German television channel ZDF reported recently that in its overall view, taking all environmental aspects of such vehicles, starting from production, via usage up to disposal, an electric vehicle, on the basis of the present day German energy mix used for power, only has a more positive impact on the environment after 80,000 kilometres than one driven by a fossil fuelled motor. So electric vehicles will not really have that much of an easy ride, being dependent on length of usage, driving performance and mileage. Electric vehicles are also not environmentally neutral anyway, unless they could each put 1 million kilometres on the clock. Even studies made on behalf of the Swiss government and the World Health Organisation, WHO, appear to be very sceptical about the alleged superiority of electric vehicles. Ultimately it very much depends on whether the electric car is running on a “clean” or “dirty” power supply.

For electromobility to make good sense, it has to be fully combined with a turnaround in energy policies. If, in Germany, all the electricity supply were to come from alternative energy sources, then the electric car would be okay and in an acceptable zone after just 25,000 kilometres. But even if this were the case, the question has still not been fully answered about whether electromobility can assert itself and indeed whether it should do so at all.

At the moment we are experiencing a lot of hype in which not just politicians and media are eagerly participating but also the big automobile manufacturers, who actually depend on combustion engines. By involving themselves, they can try to improve their tarnished image with politicians and general public alike after the diesel scandal of recent times, and also opulent subsidies from the government are beckoning in order to push through electromobility. But this is where the problem begins. If politicians do not impose fixed emission levels and set anti-pollution goals which have to be then met, all can go wrong again, especially if certain technology a priori has been given a privileged position. Ultimately it is the goals which have to be reached, regardless by which technology. Perhaps even hydrogen, produced from alternative energy resources, could be far better and more affordable than electricity stored in batteries as a power supply. This should, however, be decided by a market flanked by environmental goals and which at the same time motivates the ingenuity of engineers. The best technology, with a sensible relationship between price, environment and performance should ultimately prevail. Otherwise there is the danger of running down a cul-de-sac from where it is difficult to return because everything has been determined from the outset by a technology decreed by politicians.

So it is probably better to remain a little sceptical and more than ever permit all sorts of opinions and developments for as long as possible. Anything else would be a planned economy.

We reported that the Investment Bank, Goldman Sachs, is at the moment undergoing a detailed business analysis of its commodity activities. One result is already clear. The former global Head of Commodities, Greg Aran, will leave the company at the end of November. He had started his career with Goldman in 1991 as a commodity analyst. The company has announced that both the remaining Co-Heads will continue (for the time being?) to preside over the commodity trading of the bank.

LME (London Metal Exchange)

LME Official Close (3 month)
September 14, 2017
Nickel (Ni) Copper (Cu) Aluminium (Al)
Official Close
3 Mon.Ask
LME stocks in mt
August 14, 2017 September 14, 2017 Delta in mt Delta in %
Nickel (Ni) 375.288 384.078 + 8.790 + 2,34%
Copper (Cu) 283.325 304.350 + 21.025 + 7,42%
Aluminium (Al) 1.291.250 1.313.400 + 22.150 + 1,72%

Oryx Commodity News

Oryx Commodity News informs about current, industry-relevant topics.