Going with the flow is easy

In Europe temperatures have risen to good summer levels, but nickel prices are not doing the same on the London Metal Exchange (LME). After an interlude below the psychological level of USD 9,000.00/mt, prices have been persisting for some time now in a range of USD 9,000.00 to USD 9,300.00/mt. And there is little to speak for new dynamics. News from Indonesia about implementing an easing of the export ban for unrefined nickel ores is contributing to this, as well as the, difficult to comprehend, public relations work of some nickel producers. On top of this, the direction taken in environmental and mining policy in the Philippines remains unclear. Here are a few more details on this:

After the strict export ban was introduced at the beginning of 2014, there now seems to be larger amounts of unrefined nickel ore making its way to China. According to Chinese trade statistics, 264,000 tons of higher grade nickel ore were exported to China in May 2017. This may indeed be just a fraction of the amount which was exported pre-2014, but the fact that there is an easing and that news from Indonesia of two more companies having been awarded export licences for bauxite and nickel ore, indicates the tendency. But with present nickel (ore) prices, it has to be seen whether it is at all possible for mines and also nickel pig-iron producers – not to mention most of the conventional producers – to be able to work profitably at all, as this is very much in doubt.

With this as a background, it is somewhat surprising that some nickel producers have announced that they will be increasing production – which means in the end to talk their market down. The French nickel producer, Eramet, after a closure of eleven months will start up its refinery again and so supply the market with 13,000 tons of nickel. Also, a strike at the Doniambo works of SLN (Société Le Nickel) in New Caledonia has been ended so that a potential tightening of supply has been avoided. On the other hand, producers such as Vale have been talking about activities just in New Caledonia which are not making any profits, and are hoping to reduce the negative margins with possible cost cuts.

The European chrome benchmark price brought the expected correction for the 3rd quarter 2017. This was quite a large correction, but had been expected to be much more by more cautious market participants. The correction potential had been increased ultimately by the strong increase between the 4th quarter of 2016 and the 1st quarter of 2017. Expressed in numbers, the published price of the South African producer Merafe Resources for high carbon ferrochrome was reduced from USD 1.54/lb chrome to USD 1.10/lb, a reduction of 28.6%. And this is probably the run of the correction which was deemed necessary. Whether this level will now be maintained is difficult to predict, as in the past, chrome prices have very often been influenced by the electricity market of South Africa. Ferrochrome production is very electricity intensive and also at the same time South Africa is very prone to temporary shortages in the supply of electricity. The benchmark indicator, Lumpy Cr charge basis 52% (and high carbon), published by Metal Bulletin which is supposed to show the trend in the development of the quarterly price, is actually a little firmer at the moment.

Digitisation, automation, industry 4.0: These and other key words are being discussed more and more at the moment in terms of the increasing influence which computers and information technology have and will have on our working and everyday lives. For some time now, we have found ourselves in the middle of an unstoppable development and which effects nearly every single one of us. As the first part of a series of conferences, the interdisciplinary “Pre-Invent” recently took place at the University of Applied Science Dusseldorf, which dealt with the new digital technologies.

Along with many events, there was a lecture by the Stanford Professor, Fred Turner, named the “Democratic Surround” about the (attempted) influence of communication media such as design, architecture and music from the Second World War via the psychedelic Sixties up to today’s modern times. It was most surprising, by taking a much closer look, at how much the instruments of antifascist propaganda in America through the happenings of the 60’s right up to the effect mechanisms of what is termed as social media can be compared. But first, a really surprising digression. As part of one of the speeches, this author, obviously not so au fait with social media after all, discovered that the social network Facebook had made available to its users for a certain time after September 2014 a massive choice for defining the user’s gender. The user could, in fact, regarding gender not only chose between man and woman, but also had a choice from 58 other varieties of gender. If anyone would like to inform themselves of this, then a search of “60 gender facebook” can be recommended.

But now full attention back to the technology revolution. The employment of what is called artificial intelligence is a huge topic. Just how far is human self-determination or indeed humankind in general in danger? What still seems to be in the realms of Science Fiction, is actually in many areas already part of reality. Therefore, for all interested persons an informed opinion on this is certainly relevant. For example, in the course of deciding consumer credit, profiles are taken from very different characteristics and features (such as address and residential area, school leaving qualifications etc.), in order to make credit decisions quicker, simpler and better. The result is, however, sometimes that solvent people, who may live in the wrong area, fall through the grid and so at first do not get any credit. There are also rogue results, beyond the realms of the norm, where these “intelligent” logarithms do not function and so lead to false consequences.

There are also complex models which are used when looking at credit lines for companies, sometimes known as rating systems. The goal here is that the employment of artificial intelligence should lead to better decision making. Yet, it has to be clear that also in such cases, the reality of facts does not allow for a 100% standardisation. And even the standard is not always better than the exceptions. But as long as people are around who are in the position to, and are prepared to, verify automated decisions and indeed to correct these when necessary, then there is no need to oppose the use of artificial intelligence. Indeed, it is much easier for machines to review many parameters equally in a short time and analyse possible connections and correlations.

But software is only as intelligent as the implementation of the rules set down by the programmer and so is also not free of mistakes. What, however, could become more difficult in the future is that many people will shy away from decision making and acknowledging responsibility. This is certainly a human characteristic and quite understandable if someone has to take a stand against a computer decision which is classed as error free and more superior. The vigour and determination of any normal employee would soon find their limitations. An individual and decision maker, in the cold light of day, has, actually, only a downside risk factor.

For many people it would be wonderfully comfortable if all responsibility could rest with machines. The readiness to “intervene” would therefore become much smaller. But since the best model can never take into account all types of cases, then the “exotics” needed for creativity and further developments fall by the wayside. These already have, in the “human” system, few courageous advocates, but then there will be almost none at all if machines are left to define the norm (with their not all-knowledgeable programmers). If these thoughts can be taken further, then the point is arrived at where it becomes clear that in theory and in practice, computer analysis will be a determining feature. For example, and we are also not too far away from this now, a computer analysis will be made on a student applying to university which, on the basis of a big data exchange can determine, with a high probability, whether that student will survive beyond the second semester or not.

Is this really the example that we want for the future? It can only be greeted that there are events and forums such as the “Pre-Invent” which can make public and politics aware of the challenges ahead.

As the news agency, Bloomberg, has reported, the American Investment Bank Goldman Sachs seems to be slowly losing some interest in commodities. Back in 2013, the Chief Executive Officer (CEO), Lloyd Blankfein, was quoted as saying that the commodity business was a strategic core part of banking operations. In the meantime the interest of investors in commodities has cooled, after the “Commodities Supercycle” has been stuck in a phase of down and sideways movements for a while. On top of this, the financial market regulators have been focussing on certain high risk operations of investment banks in the field of commodities. The impression, however, cannot be easily shrugged off that Goldman Sachs, along with others who also took part in turning commodities into “turbo investment classes”, on certain occasions were not just bystanders in drawing the attention of regulators. In as much as it seems a correct step for reasons of profitability, it has to be doubtful for reasons of continuity that the commodity division of the bank has to undergo a detailed review.

It would be a shame if another bank gave up or even just reduced its commodity business, for there are numerous market participants in this field who always only just go with the flow and follow the crowd.

On this note, we would like to wish our valued readers an enjoyable summer with happy and safe bathing, away from the crowds.