Even nickel is a Kobold metal

At the moment prices on the London Metal Exchange (LME) are massively influenced by exogenous events. And nickel is certainly not the one with the most extraordinary development. Due to the trade tariffs, announced by the Trump administration, on steel and aluminium products, there was an instantaneous correction on global reference prices for industrial metals, which was also reflected on the stock markets. But then this was followed by an immediate recovery after numerous long-term trading partners of the USA were taken out of these trade restrictions, either wholly or partially, or at least for the time being.

After that the American President concentrated on the trade conflict with China which started a scramble to announce trade tariffs on all sorts of products, whereby China – not surprisingly – answered accordingly and in the meantime has been in contact with the WTO. Once again, uncertainty led to corrections in the markets. In the meantime aluminium prices in the USA had already risen quite significantly.

More recently there has been an increase in sanctions against Russia by the United States of America, including against the oligarchic shareholder of RUSAL, so that now one of the biggest aluminium producers in the world in particular has been affected. And with what consequence? Industrial metal prices across the board gained in momentum. And, not to be otherwise expected, aluminium especially was the frontrunner. After prices of below USD 2,000.00/mt were seen at the beginning of April, following the sanctions they then reached a 6 year high of USD 2,325.00/mt within just one week. This is an increase of around 16%.

And so Donald Trump has done the global economy no favours, and this includes his own consumers and companies, only the US aluminium producer, Alcoa, can celebrate. But perhaps the President or his relatives could speculate privately on rising commodity prices, or even have interests in Alcoa. If the naked figures are taken, the sanctioned RUSAL group stands for about 6% of the global aluminium supply. In contrast to this, the USA produces just about, in total, 900 thousand tons, or in other words, 1% of global output. However, US American demand is over 5 million tons so that there is a big dependency on imports.

The situation in China is different as it stands for 58% of global aluminium production and so could end up being the biggest profiteer from the American sanctions. The trade war Trump has started would then be contrary to his self-interests. With all these events the forecasts of analysts for aluminium prices in 2018 are now written on waste paper.

But not just Russian oligarchs and their companies have been hit by the sanctions, other illustrious individuals have cold feet, as the Frankfurter Allgemeine newspaper (FAZ) reported on the 13th April 2018. An example is in Switzerland where Renova Holding is owned by the Russian oligarch Viktor Vekselberg. This holding company is the main shareholder of the Swiss industrial corporations Sulzer, Oerlikon and Schmolz + Bickenbach. And, needless to say, Renova has, as is common for a Swiss company, a board of directors. From news items, it is not entirely clear if the board of directors has been dissolved, or whether just individual board members have resigned.

It is, however, a fact, and quite remarkable too, that up until recently the following individuals belonged to the supervisory body: The former head of Deutsche Bank Ackermann, the former head of Ferrari Luca di Montezemolo, and also the former head of the American secret service, the CIA, John Mark Deutch. All too nice to be true could be thought. And if it had not have been the venerable FAZ reporting, there would have quickly been a suspicion of fake news.

But this is not everything. The American President, via Twitter, had to also quickly make a declaration of war 2.0 in the Syrian conflict. This was based, as could be read in the Handelsblatt, perhaps – as an emotional and direct reaction – on a mistake in translation from Arabic of a remark made by the Russian ambassador in the Lebanon. Just in what type of world are we living? The director of the Munich conference on security, Wolfgang Ischinger, can only be agreed with when, in a recent interview about the Syrian crisis, he emphatically made a warning about making comparisons to the Cold War and the Cuban Crisis creating panic and unfounded fears.

It is without question that the American President can make waves on the markets, just as the almost legendary Federal Bank President, Alan Greenspan, used to, but here are three comments about the actual political style of Mr. Trump: Threats which are not always followed (thankfully) by direct or appropriate action, in time become ineffective. Child education has classic examples of this. Educational guides describe it thus: “Through unrealistic threats children will be either be frightened and made insecure, or realise that adults just make empty threats which have no consequence.”

Also, according to the game theories of economic-mathematics, a threat has to fulfil the following conditions: Effectiveness and ability have to be seen. A distinction will be made between forceful deterring threats and empty ones. And the opposite of a threat is a promise, which, through positive implications, can have an influence on trade. Should not this be at least attempted?

And last, but not least, the very serious debates going on at the moment about Facebook and its misuse of data, especially in the USA, in for instance the hearings of Mark Zuckerberg in front of the Senate and Congress, do show that there are indeed also powers at work which do in fact strive for improvements in conditions. So all hope is certainly yet not lost.

Warehouse stocks of the LME and the Shanghai Futures Exchange (SHFE) which are continuing to fall are also not without influence on the nickel price. After a correction in price to under USD 13,000.00/mt following the introduction by the USA of punitive tariffs on steel and aluminium products and the escalation of a trade war with China, the nickel price was able to firm up once more after the extended and intensified sanctions against Russia, and reached levels again well above USD 14,000.00/mt. Nickel profited, therefore, not just from a general improvement in sentiment associated with the price jumps in aluminium, but Russia, with Norilsk Nickel (Nornickel), is a very important producer and exporter of this commodity. In the year 2017, Norilsk produced a total of 217 thousand tons of nickel which was equivalent to approximately 10% of global prime nickel production.

The fear is not far from the market, that, with a renewed intensification of sanctions, supply of nickel, similar to that of aluminium, could become much tighter. Although RUSAL, which is affected by controls, is supposed to have a 27.8% involvement in Norilsk Nickel according to Metal Bulletin, Nornickel, by all accounts, has so far not been hit by the sanctions at all. Whilst the LME has taken RUSAL produced aluminium off the list of qualities accepted by the exchange as of the 17th April, there have been no such statements made in reference to nickel produced by Nornickel.

To be on the safe side in regards to all sanction matters, the nickel consumer is of course always better to source nickel domestically, such as making use of stainless steel scrap. And so, almost overnight, the sustainability discussion of the last publication takes on a new aspect. Logically, a restriction on primary nickel supply caused by sanctions could influence prices of the related complementary secondary commodities.

Meanwhile, the importance of cobalt metal on the further development of electro mobility has been picked up by financial consumer media publications. The well-known British financial magazine, The Economist, has published an article referring to cobalt metals under the heading “What if China corners the cobalt market?”. The names of the metals, cobalt and nickel, are actually derived from kobolds (a form of goblin from pagan Germany). According to mythology, they put magic on silver and copper ores so that, by not having the right technology at the time, they could not be successfully smelted.

The Economist also reported, though this is probably already known, that more than half of all cobalt reserves are to be found in the Democratic Republic of Congo, not a very stable country and perhaps not very democratic according to definitions in our part of the world. What is, however, much less well known, but maybe even more important is the fact that 80% of all cobalt sulphates and oxides, which are needed for the production of cathodes for lithium ion batteries, are refined in China. The remaining 20% are produced in Finland, although the materials needed are from the Congo just the same, they are actually out of a cobalt mine which is owned in the majority by a Chinese company China Molybdenum.

And there is more. On the 14th March it became known that the Chinese battery producer GEM has secured a third of all cobalt deliveries of the commodity trader Glencore for the years from 2018 to 2020. With this, China takes on a dominating role in the cobalt market, just like a few years ago with the rare earth elements. Therefore, it is also no surprise that cobalt prices have increased almost fourfold over 2016, reaching levels already of over USD 90,000.00/mt. The report does not, however, make the conjecture that taking on such a dominant role in the market is a matter of manipulation for speculative aims. It is more a case of China trying to create the right conditions in order to achieve its strong ambitions for electro mobility.

Of course, this situation gives those related companies outside of China headaches, for they are all still too aware of the export restrictions imposed on rare earth elements. For this reason, it can hardly be imagined that there will be a short or medium term easing on the cobalt market.

Battery makers are, therefore, turning more to resolving the question of how the share of the scarce and very expensive cobalt can be reduced in batteries usually used in electro vehicles. One attempt is to increase the share of nickel. Even though the capacity of a battery would actually be increased by this, the production at the moment is really more difficult. Equally, the problem of flammability has not been sufficiently solved. Future development of battery technology will show whether electro mobility will have an even stronger impact on nickel demand than had been previously thought.