Fido home alone

No environment for surprises
Since the last edition, nickel prices have hardly changed, perhaps just having a slight tendency on the downside. The low for nickel on the London Metal Exchange (LME) of USD 15,900.00/mt at the end of November 2023 was indeed tested once more, but so far without success. At the moment nickel is trading around USD 16,400.00/mt. On the whole, this development is not surprising given the background of very quiet Christmas and New Year holidays when many companies close down. If the stock market was anything to go by – which, despite the weak economic situation and continued significant interest rates, finished the year and started the new one extremely firm to rising – then the crisis is already over and better times are waiting.

Of course, the weaker US-dollar plays a part in this, which is generally bringing down commodity prices when expressed in other currencies, as the interest rate increase cycle in the USA has come to a standstill or perhaps is even at a turning point. Individual members on the Board of the Federal Reserve (the US central bank) are already talking publicly about potential interest rate cuts. While other central banks still proclaim that inflation has not yet been conquered, behind closed doors and in individual statements, interest rate cuts are already being prepared.
Shares would then become relatively attractive again compared to investments in bonds, and, above all, companies would also have relief from financing costs. In perspective, this could in turn lead to higher company profits and dividends. Also more attractive or more favourable financing conditions increase the tendency to invest, which, especially in the durable goods and construction sectors, should provide a clear positive boost. It has to be seen how this happens and, above all, how quickly. The expectation here is, quicker and stronger.

However, it is probably still too early to judge what will happen in the stainless steel market and how the year has started. People are only just starting to return to their workplace and desks again after the Christmas break. Possibly even in larger numbers than expected, as the work from home model, so praised during Corona and since, seems to have exceeded its peak. Quite a few companies are giving out clear directives to their employees on how many days they are expected to be present at work.

What was certainly to be expected, and has been critically remarked upon here, is that the work from home culture has not shown much evidence of improving the quality of workflows and procedures and has therefore been negatively reflected in customer satisfaction. As this is now, however, also reflected in company turnover and results, then appropriate changes are being made. This is not just sad for the workforce, but also for the numerous house pets, such as dogs and cats, which were acquired during corona and working from home times. These must now stay at home alone, or be taken care of some other way.

Perhaps soon the first companies will be opening dog care centres as a unique selling point for employee recruitment. Fido makes it possible. The authors here certainly find that personal contact between people is still the “gold standard”, despite the comfort and advantages of the working from home model.

Nickel – “The Biggest Loser”
2023 was, basically, not an “easy” year. For the industrial metal nickel, it was even a very difficult year and the significant price drop of 45% within the one year period to finish at USD 16,300.00/mt (cash) resulted in nickel receiving the none too flattering title of “The Biggest Loser”. And this has nothing to do with the television reality show of the same name about losing weight, quite the opposite.

One of the important factors in this significant price drop, which by the way, was the biggest since 2008, the year when the collapse of the Lehman Bank triggered the global financial crisis of 2008/09, was a major expansion in production capacity and thus a corresponding surplus but with subdued demand. Official figures of the International Nickel Study Group (INSG) already show a supply surplus of about 193,000 tonnes for the first 10 months of 2023; analysts expect a surplus of more than 220,000 tonnes for the whole of 2023.

This is a level which, measured in absolute terms, significantly exceeds that of the 2010 years: for 2013 the excess reached around 174,000 tonnes. Seen together with primary nickel production the expected surplus for 2023 of about 7% would still be behind that of 2013, when approximately 9% “too much” nickel entered the market. Then, however, the surplus was in the most part made up of exchange negotiable Class I nickel, so that the LME warehouse stocks also rose significantly at the same time. Between the years 2012 and 2015 when the nickel segment was in oversupply, warehouse stocks climbed from around 140,000 tonnes to over 440,000 tonnes. This was certainly reflected in the respective price levels. That cannot be compared to the present situation.

What is different today? Since the end of the third quarter 2023 the official warehouse stocks have been increasing again. Since the 1st September 2023, however, there has “only” been an increase of a good 37,000 tonnes in the official stocks of the LME and the Shanghai Futures Exchange (SHFE) – therefore only a fraction of the expected surplus. Apart from the fact that some nickel is naturally also stockpiled outside of Exchange warehouses, it can still be deducted that the supply surplus in 2023 has not been primarily composed of exchange deliverable nickel which producers could have placed in the warehouses.

This could change again in the future: analysts of Macquarie Bank see a considerable expansion of Class I capacities in China and Indonesia of up to about 250,000 tonnes annually. At the moment, Class I production is just about 830,000 tonnes. Some of these new capacities already started operation in 2023. These could produce a further 100,000 tonnes Class I nickel during 2024.

One part of this additional Chinese Class I production will surely soon find its way into the LME warehouses: along with the Jinchuan Group, already regarded as a “classic producer”, in October and November last year three more producers were approved as suppliers: Quzhou Huayou Cobalt New Material (“Huayou”), Jingmen Gem (“GEM”), and Guangxi CNGR New Energy Science (“CNGR”). Macquarie analysts therefore expect Class I to also move in the oversupply direction.

LME wins legal dispute over suspended nickel trading
A simplified and, therefore, quicker approval of new producers as suppliers to the LME is part of the package which the Exchange imposed upon itself after the nickel turmoil in March 2022 in order to regain trust and also volume (in the sense of the number of transactions). As a reminder: within three trading days in March 2022, the nickel price climbed from USD 27,800.00/mt to exceedingly dizzying heights. A few hours later trading was suspended and the LME specified that the closing price of the previous day would be the last official closing price. Effectively, all transactions which had taken place from the closing price up to the suspension were null and void. The reason behind this massive step taken by the Exchange was and is that at this point in time orderly trading in the nickel market was no longer possible.

Subsequently, investors Elliott Associates and Jane Street Global took the matter to court in order to sue the LME for damages; the suspension of trade and the ensuing annulations had caused a significant loss of earnings. The joint claim totalled USD 472 million. At the end of November, the court involved, the High Court of London, ruled in favour of the LME and confirmed that it was the responsibility of the LME to maintain orderly trading and, in accordance with the rulebook, had and has the authority to intervene, even if this meant cancelling trades.

One of the measures already quickly introduced in March 2022, was the setting of daily price limits, or “DPLs” in Exchange terminology. The rules for this, or to be more precise, when volatile price swings can be deemed necessary to allow for a suspension of trading, are now be more refined. In mid-December the Exchange published a proposal for this. Accordingly, trade would be suspended as soon as the closing price on three consecutive trading days reached the corresponding daily price limits. Trade would then be suspended from midnight London time, until the LME itself lifts the suspension again. This proposal is currently open for public consultation until the end of January.

Man-made AI – where is the universal genius?
We last discussed artificial intelligence “AI” and ChatGPT in September 2023. The topic has now gathered pace, and not only in circles of friendly debate. On its online page on the 9th January, the German news channel “Tagesschau” reported that the car manufacturer Volkswagen (VW) was integrating ChatGPT into its vehicles. The Tagesschau wrote that “this should make it possible to have researched content read aloud during a journey and to interact with the car in a natural language”. This report shows that no-one of course wants to miss out on the AI transformation, but on the other hand, some companies are still more concerned with finding out how the strengths of AI can be integrated into their products and systems.

And this is certainly not so easy, as can be heard in business circles. This is because ChatGPT and the like can sometimes also produce fantasies and tend towards certain hallucinations. Why this is so is explained below. Sensible applications have already been successfully tested. To just mention a few examples such as night-time stocktaking in supermarkets or in daily cash taking counts, and also personnel departments have found support to help formulate job adverts to target specific groups.

Therefore, in the meantime, there are hardly any people left who have not, sometime recently, uttered loudly their astonishment and then almost euphoric enthusiasm about the “capabilities” of ChatGPT. Taking this even further, quite a few are already predicting that people will become superfluous in working life, perhaps even longing for this, depending on their personal motivation. However, if these extremely vocal exponents are asked, just what the abbreviation GPT actually stands for, then mostly there is nothing to be heard except silence.

The enthusiasm is often not really being driven by a genuine interest, but more by the desire to speak in the most sensational way about it. The knowledge deficit can be helped here, as “GPT” stands for Generative Pre-trained Transformer. These are language and image-based models or algorithms that are trained, with considerable data and information input, to provide linguistic or visual answers to questions. They are, therefore, not at all search engines or knowledge databases.

To put it simply, language based models or logic mean that the answer to a question is determined by which word from the accessible data has the highest probability of appearing next in the answer set. In this respect, the quality of the answer from ChatGPT depends very much on the quality of the question. And, therefore, this also explains why ChatGPT can fail in calculations of very complicated mathematical operations and can hardly be expected to come up with meaningful results, as it is, after all, just a language model and not an universal genius.

It is then no surprise that in this context a new job description has emerged, the so-called “Prompt Engineer”, a professional questioner who often receives an annual salary of between 300 and 500 thousand Euros. If experts are asked about the actual technical breakthrough of AI in the latest generation, then the answer would be in 2022, when the image producing models with “latent diffusion” at the Ludwig-Maxmilian University in Munich, a completely new type of neuron network producing extremely good results in image generation were introduced.

Hopefully the real innovation does not once again come from Germany and Europe, such as, for example, MP3 audio coding and compression, whilst the economic benefits are reaped by other countries and their companies. The actual technical revolution of ChatGPT goes back really several years. The transformer was already invented by Google as an important building block in 2017. Interestingly, at the time, no big hype was made about it. According to experts it was necessary for the availability of these models to be increased. This was achieved, above all, by raising considerable investor funds from new companies, as well as significant investments from established market participants such as Google and Microsoft, which have invested billions in AI. Now these amounts have to be amortised so some type of hype is not so detrimental.

In addition, these companies, with access to highly modern computer facilities, were able to process incredible amounts of data required for an “intelligent” AI. In this, it is not so much the capacity of a single processor which is decisive, but the parallel availability of a tremendous amount of processors. Software with the corresponding hardware infrastructure is one thing, the complex training of the systems with data input and the verification of results (in other words, the “teaching” of the models is also extremely expensive and time-consuming) is another, since many people (!) are still required to check the answers of the systems.

It should, however, be noted that in connection with the immense development and operation of new data processing centres, mainly in South East Asia, which are now needed, unfortunately only little can be read about the considerable energy consumption and additional carbon emissions. The subject matter is far too fascinating for anyone, no matter who, to want to tarnish the gloss or look below the surface.

In any case, the cabaret artist, Dieter Nuhr, is of the opinion that AI, if it were really so intelligent, instead of working for people, it would make people work for itself. This is the division of labour in the future.

worldstainless announces figures for 9M 2023
Shortly before the publication of this report, worldstainless, a global stainless steel association based in Brussels, released the production figures for the first nine months of 2023. Overall, smelting production rose by 2.5% to 42.9 million tonnes compared to the previous year. Compared to the previous quarter, the rise for the 3rd quarter 2023 was similar at 2.2%. The third quarter 2022, with a tonnage of 12.794 million tonnes was, however, clearly lower than the 14.727 tonnes in Q3 of 2023. In 2022 the increased weakening of the global economy and in consequence also the stainless steel economy was already noticeable.

Looking at the regions, in the first three quarters of 2022 there was only, more or less, a high amount of declines everywhere. At the time even China had shrunk by 5.2% compared to the previous year. This looks different in 2023. While all other regions once more show significant and even up to double digit declines for the year – a drop of 8% in Europe can almost look quite moderate compared to a decline in the USA of 13% – China reports a very solid growth of 13.4% with 26.606 million tonnes compared to 23.457 million tonnes in 2022.

Now the publication of figures for the whole year 2023 is eagerly awaited. Forecasters expect for 2024 a more significant growth of 5-5.5%, also outside of China. It has to be seen to what extent this forecast can be met in view of the various challenges. But the signs for the rest of the year are perhaps not quite as bad as the current situation.