For the good lies so far away

Global economy is not really getting back on its feet
Midsummer in Germany was not only weather-wise a disappointment, but also the economy, on both a national and global level, did not really start to pick up yet. At least the autumnal-like temperatures are starting to rise again. While the monetary watchdogs, to keenly fight inflation, have been continually and vigorously raising interest rates in firstly the USA and then also in Europe, the substantial recovery in China, which had been really expected after the end of the strict corona measures, has not yet taken place. Indeed, if this ever does happen. The capital market, in the meantime, seems to be doubtful about the medium to long term somewhat questionable formula “Bad News is Good News” for China. The government’s essential supportive measures which had been hopefully awaited have yet to materialise.

So, in this complex and mixed situation of considerable monetary and geopolitical challenges, lack of clarity and confidence, and combined with the usual summer economic slowdown, it is not surprising that the third financial quarter in many sectors of the industry cannot really be described as an historic record quarter. Thankfully for the steel industry, there were some of these record quarters to be observed in the 2021 and 2022 financial years. For the time being, the party appears to be over, whereby consolidation is usually followed by normalisation, which is already taking place.

For example, the nickel quotation on the London Metal Exchange (LME), which is still disputed by some market participants as having the status of a universal reference price for nickel raw materials (despite discounts and premiums reflecting individual supply and demand conditions as well as differing grades), fell in the course of the month from USD 22,500/mt to just over USD 20,000/mt. Whether the falling prices will silence the LME doubters is difficult to say, but not to be excluded. For the critics it is essentially about paying as little as possible for the raw materials. This does not apply, however, to their sales side as here the price can happily be higher. In general, economically understandable, but not always factually correct thoughts.

The whole metal complex is weakening
The drop in the nickel price was also in line with the LME quoted industrial metals, copper and aluminium (also known as the metal complex), which made it clear that the latest price movement was not just a matter specific to nickel, but that the rather weak macroeconomic outlook and the currently reduced demand are the main drivers of the development. Even with all the current weakness, there is still hope for the remaining 2023 because this is not an unusual situation for this time of the year.

Even though the breadth and depth of the challenges make a quick return to the records of some previous quarters unlikely, there are cautious signals that the reduction of stocks, which has been going on for some time now, has led to the pipeline falling relatively empty after all. And this does not mean North Stream 1 and 2, of course, but the ability to supply stainless steel, for example, and also other materials. It seems that even a slight increase in demand, even if initially only in the sense of a re-stocking, could fundamentally change the situation on the markets. As mentioned, this may not be at a record level, but still at an adequate one.

The fact that in the USA there is increasing talk about an end to the cycle of interest rate increases could be a further early sign that a ‘soft landing’ could be ahead after all. The financial analysts of some banks have already shelved their forecasts for a developing recession in the USA or have at least diminished it. The European Central Bank, with Christine Lagarde, on the other hand, remains a big disappointment as no real logic or dynamism in the European battle against inflation can be seen, nor any important concise communication be discerned. It is rather more the case that in Frankfurt the “template” of the Federal Reserve in the USA is acknowledged and then after some time is also reproduced.

Climate protection needs raw materials
Raw materials and access to raw materials are elementary for a corresponding economic growth. But this is not all. There are many topics, such as energy transition, the fight against climate change, the production of electric cars, aeroplanes, and also machinery and plant engineering where raw materials are indispensible in technology and products. Just in energy transition alone, there are numerous long term forecasts that point to a significant increase in demand for metals such as copper, nickel, cobalt, lithium and other so-called critical raw materials. Only recently the International Energy Agency (IEA) wrote about its expectations and forecasts in a “Critical Minerals Market Review”. In a basic scenario, the IEA sees nickel demand rising by 5% per annum or 1.5 million tonnes to 4.5 million tonnes by 2030.

The scope of consumption resulting from energy transition, such as in electromobility, will see an above-average growth of 20% per year. This means that demand will increase almost fivefold and account for almost half of total demand in 2030. It should be mentioned, however, that this basic scenario assumes that all governmental and non-governmental commitments regarding carbon savings and energy transition are met. In contrast to this, the ‘net zero emissions 2050’ scenario results in an even greater demand. Here the total market segment annually grows by 9% to 5.8 million tonnes and the demand driven by energy transition by even 29% per annum to 3.5 million tonnes respectively. Even in the forecast of a status quo, an increase of at least 15% or 1 million tonnes is expected.

Old and new exploration grounds: The oceans and the moon
Long term forecasts of this type and the question of where the resources can be found to meet such demand increases bring into discussion not just the old known exploratory regions, but also new areas too. Deep-sea mining is one such old acquaintance: since the 1960’s mineral raw material deposits have been explored in the oceans. Towards the end of the 1970’s, against the background of declining metal contents in sulphidic and lateritic ores, these deposits were already seen as a realistic possibility of being able to cover future gaps in demand for nickel, manganese or copper, among others.

Germany was one of the pioneers in exploration at that time. The companies Preussag and Metallgesellschaft, and others, belonged to the „Arbeitsgemeinschaft meerestechnisch gewinnbarer Rohstoffe” (AMR), which was an intra-companies working group regarding the sea-wise exploration of raw materials. Currently, the Federal Institute for Geosciences and Natural Resources (BGR) holds two exploration licences on behalf of the Federal Ministry of Economics and Climate Protection: one in the Pacific and one in the Indian Ocean. The German exploration licence in the Pacific is located in the so-called “Clarion-Clipperton Fracture Zone”, south-east of Hawaii, and is one of 19 licences currently granted. Other licences are held by China, Russia, India, Japan, South Korea, France and the UK. The exploration licences and ultimately any mining concessions are administered by the International Seabed Authority (ISA), a United Nations organisation.

The deposits explored in the Clarion-Clipperton fracture zone are so-called manganese nodules. These are polymetallic and contain copper, nickel or cobalt as well as manganese. A  pioneer of commercial exploration is “The Metals Company”. Supported by the island state of Nauru, the ISA has an application for mining. In 2022, the company put into operation a pilot plant to collect manganese nodules from the seabed, but most recently committed to conducting a more in-depth environmental and social impact study.

Deep-sea mining is controversial because of its interference in marine biology. In 2021, companies such as Google, BMW and the Volkswagen Group had joined a call by the World Wildlife Fund (WWF) for a moratorium on deep-sea mining. However, current studies and life cycle assessments ascribe lower carbon emissions per tonne of nickel and in some cases even better environmental compatibility in deep-sea mining than in conventional mining, for example in Indonesia. These problems have been dealt with in more depth in our recent commodity news reports.

But man’s interest in further exploration is  not just limited to the deep oceans. After the deep-seas may come the moon: according to a representative of NASA at a mining conference in Australia, minerals should also be mined there in the next decade. According to press reports the focus would first be on oxygen and water, and then also on the extraction of iron or rare earths from moon rock. The Russian Luna-25 mission, started now in August, should initially spend one year just looking for water.

And how does the European Union view critical raw materials?
In March of this year the European Commission presented a package of measures called the “Critical Raw Materials Act”, which is supposed to ensure a long term and sustainable supply in the European Union of those raw materials considered critical. As well as the so-called rare earths or the platinum group of metals, the metals cobalt, copper and nickel have also been identified as such critical raw materials. These have, as already described, a very high relevance for the energy transition. The act sets down guidelines for capacities necessary along the raw material supply chain and for a diversification of supply to the end of 2030:

• at least 10% of the European Union’s requirement to be met by its own mining
• at least 40% by its own processing and
• at least 15% should be covered by recycling.

There is also a requirement that not more than 65% of its requirements should be sourced from one single third country. At the end of June the European Council issued an even stricter demand that requirements should be covered by at least 20% recycling and at least 50% by its own processing. It is expected that Council and Parliament will have taken a final decision on the guidelines by the end of the year.

The German government is working on a National Circular Economy Strategy (NKWS)
As can be seen in the requirements (cf. also the section above inter alia), recycling plays a decisive function in the reduction of supply risks. In Germany, the Federal Ministry for Environment, Nature Conservation, Nuclear Safety and Consumer Protection is working, therefore, on a national circular economy strategy. This should provide an overarching strategic framework in which the Federal Government defines goals, basic principles and measures which support all detailed strategies relevant to raw material policies.

It defines where and how the German government can set relevant incentives and framework conditions in order to achieve a more circular economy in the sense of the 3R’s “Re-duce”, “Re-use” and “Re-cycle”. The measures should especially be aimed at improving market conditions for secondary raw materials and to considerably increase their share in raw material consumption. Furthermore, it is also about improving raw material efficiency and promoting a product design which concentrates on durability, reparability and recyclability.

Or course the national circular strategy also aims at environmental and climate protection and the potential saving of greenhouse gas emissions. The Ministry writes “In key sectors of our economy, the majority of greenhouse gas emissions are not caused in the production of end products, but in the extraction of raw materials and the manufacture of intermediate products.”

Transferred to the steel industry, recycling and correspondingly the secondary raw materials  steel and stainless steel scrap play a decisive role in the decarbonisation of this segment. It is positive to note in this connection that the recycling of steel scrap and its conversion into a secondary raw material is innately conform to EU taxonomy and therefore, this particular recycling segment can already now be classified as a green industry.