Nickel holds its ground. Despite all voices of gloom. Italy is once again in the headlines. Its government wants to make more debt. Not a good signal.

Following on from 2017 and 2018, the International Nickel Study Group (INSG) expects a supply deficit 2019. The dollar peg to commodity price development is weaker at the moment.

Low river levels and chaos in the railway network influencing the scrap trade. If it does not rain, there could be a threat of a supply crisis for manufacturers if production levels increase.

Indonesia has won its market share of nickel ore back from the Philippines. However, exports remain below the historic highs. Unclear how much influence the earthquake has.

Faced with a dampening of mood in the global economy, nickel prices could hold around the USD 12,500.00/mt level on the London Metal Exchange (LME), going against the general trend in prices. The lows of mid-September which saw prices just over USD 12,000.00/mt have not so far been tested again. The LME week was also taking place in London but even this did not have a strong negative impact on the nickel price, contrary to some previous years.

Heavy losses on the stock markets had first been caused by the various trade wars initiated by the USA, weaker data out of China and also an expectation of a turnaround in the economic cycle. This has now been followed by headlines about the high debt of Italy – bringing worries about a renewed flare-up of the Euro financial crisis. Thoughts are also having to be made about how emerging countries, whose debt is mostly in US-Dollars, will come to terms with a change in US interest rates.

It is hardly surprising that these reports, when seen as a total, have left an impression on surveys taken by economic research institutes. It had, therefore, to be expected that expectations of economic indicators would be lower. In anticipatory submission, not only the German federal government, but also the International Monetary Fund (IMF) corrected their growth predictions downwards.

The International Nickel Study Group (INSG) published their forecasts for nickel demand and production for the years 2018 and 2019. The forecast for 2017, in 2017 had reckoned with a production of  2.052 million tons, with a demand of 2.15 million tons (giving a supply deficit of around 100 thousand tons). Now for 2018, the estimate is of a nickel supply of 2.2 million tons, with a demand for 2.35 million tons (a deficit of 150 thousand tons). The following year, 2019, should also see an increase in supply and demand, according to the INSG: 2.42 million tons should then be in demand, whilst production is expected to be 2.39 million tons.

Lastly, it should be pointed out that in recent times, a tight pegging of commodity prices to the development of the US Dollar rate has eased off somewhat. The “legality” of seeing a stronger Dollar against weaker commodity prices, and vice versa, cannot be so readily asserted just now, which also speaks for either more serious fundamental data, or just speculation, moving prices at the moment. The impression could almost be made, without going into the all too popular conspiracy theories, that interested groups could be intentionally propagating negative reports to bring share prices to their knees.

That Italy, at least on the face of it, has a debt problem is certainly not new. Almost a year ago, on 22.11.2017, the headline of the Germany newspaper “Die Welt” was “Italy is now officially Europe’s trouble spot”. This was in regard to a debt level of more than 130% of its Gross Domestic Product (GDP). The EU maximum level is actually 60% of economic output, which, some countries, including the seemingly role models Germany and France, have had problems adhering to.

That the populist government in Italy wants to extend its debt even more does not of course send good signals to markets. But why should this be denied the Italians, when, on the other side of the Atlantic, another populist expert is trashing global economic porcelain all the time and has promoted lies to become the standard. And in Italy, if the immense amount of economic output in, unfortunately,  the so-called black economy is also taken into account, then the ratio of 130% is reduced considerably.

If this were not so, then there would probably already have been a state bankruptcy. So the EU must continue the pressure on Italy by the other member states and institutions, and hope that Italian voters come to their senses. The markets have already penalised bank shares and financing conditions for government bonds in Italy for the behaviour of the government. This does help sometimes more than the best arguments – look at Turkey.

Whilst what is happening at the moment with nickel prices, with a nod to electric mobility, is somewhat understandable, the same cannot be said for the present state of the stainless steel scrap market. Market parameters and prices are not logically conform, so that an accountant has to seriously ask just what is actually market related here. Attempts at rational explanations do not give answers. An example is that of the estimates made by the INSG for the structural demand deficit in nickel. Is the market really surfing on the wave of ignorance?

Neither direction nor extent of nickel valuation in recent months is justified. Also, the upheavals of massive transport problems caused by low water levels and chaos in freight rail have not even be called into consideration. For some time now, value and market risks have not reflected the margin framework enough. The fact that underlying commodity prices, from time to time, can give the prices some positive effects, cannot be given as an explanation for the situation.

But the clearance sale mood must not belie the fact that restricted availability, together with river and rail transport difficulties, similar to a force majeure situation, has not led to a moderately severe supply crisis for consumers because this had just about been countered by a reduction in production, as dictated by order books. When production does, however, take off again, due to the ongoing dry period, massive bottlenecks could follow, starting from the bottom going all the way to the top of companies. This situation should be tackled now already, as the usual “just in time” approach just does not work due to a lack of infrastructure. Only a sufficient stockpiling can help, along with usage of transport facilities when available and not just when wished.

Actually, the German Railways (Deutsche Bahn) should be one of the biggest profiteers from low river levels. Yet it is losing out in competence disputes with railway networks of neighbouring countries, as well as to private companies, and is still occupied with its own organisational deficits. The Deutsche Bahn had also been sugar-coated by politicians in preparation of a stock market floatation, planned but then dismissed long ago, which today has the same meaning as an investment congestion on the railways and in mobility.

In concrete terms, there is a huge shortage of freight wagons and locomotives. And just recently the steadily falling number of qualified train drivers has given cause for concern. And how does the strategy look to change this? There is none at all, it would appear. It is certainly most fortunate that former politicians support the board of Deutsche Bahn so excellently, including Mr. Ronald Pofalla, who, by all accounts, is preparing himself for CEO. Then “surely” everything will be a lot better.

Now of course, complaining is all part of business (e.g. the complaints made at the time by the car industry about hardware upgrading in previously modified diesel motors), but when markets are moving in a manner distant to their economic Pareto Optimal outcome, then this must be picked up and discussed, whether it concerns the Germany Railways or the steel recycling industry. This should also concern the British, now not so confident as the Brexit date approaches, and awareness is beginning to increase that a hard Brexit is more and more likely, even though this goes against any optimal outcome.

In talks with numerous UK citizens during the LME week, a significant increase in uncertainty and insecurity was heard. The same question was continually asked about how the future would be after Great Britain exits the EU. By coincidence at the same time, results of the “poll of polls” were published. The Evening Standard and other media ran the news that after analysis of 150 polls, the result was that now a majority of the British wish to remain in the EU. This renews the question of whether it should be on the political agenda to hold another referendum about leaving the EU.

Regardless of the hopes of many continental Europeans (and numerous Brits) that in the last second the United Kingdom does remain in the EU, the whole process is even more problematic under the aspect of democracy. For almost all of the British political old guard this would be an enormous loss of face and, in having to make decisions with such ramifications, it was certainly to have been expected that the voting public should have been fully and correctly informed before casting a vote.

Now to blame the good weather for the defeat is not really very fair. And it cannot be that there is a mutation of democracy, in that a vote is made until the right (for whoever whom) result is reached. This would be detrimental to the constituting legalities of democracy. This is already problematic when succeeding governments immediately revise rulings of predecessors or even overturn them completely (e.g. health reform in the USA).

One lesson surely to be learnt from the situation in Great Britain is that a parliamentary democracy, at least under certain circumstances, already has certain advantages, and despite all wishes to be closer to voters, perhaps a referendum is not always the best way to make decisions. All legislature makers in all countries of the world should make a note of this. In a final conciliatory word, it has to be said that life, and also working collaboration on both sides will continue after a hard Brexit. And Great Britain will continue to be part of Europe, even if only geographically. No referendum result can change this.

Mid September saw the sixth Asian Nickel Conference of Metal Bulletin take place in Jakarta. Indonesia, despite or perhaps because of the terrible earthquake disaster, seems to have developed into a venue for international meetings. At the moment the World Bank and the International Monetary Fund are holding a meeting in Bali. However, reports about how big the effect was of the earthquake and tsunami on the substantial Indonesian production of nickel ore and nickel pig iron (NPI), and stainless steel are quite thin on the ground.

Metal Bulletin reported that there are four important findings to take from the conference: (1) The consumption of nickel in the battery sector will rise, which is why an increase in capacities for nickel sulphate production can be expected, (2) Indonesian’s exports of lateritic nickel ores, even after a relaxation of export restrictions, remain below the export levels of before the export ban, (3) Indonesia is taking more and more of the market share back from the Philippines, which had stepped in to fill the supply gap created by the export ban. This is also mainly because of the higher nickel content in Indonesian ore. (4) A renewed increase in NPI production because of the improved ore supply could release amounts of Class 1 nickel for usage in industries other than stainless steel.

The European benchmark price for high carbon ferrochrome, for the 4th quarter 2018, is 1.24 USD /lb. This relates to a drop of 14 USD cents, or 10% against the price of 1.38 per lb for the 3rd quarter 2018. The price change was in line with expectations.

LME (London Metal Exchange)

LME Official Close (3 month)
October 11, 2018
Nickel (Ni) Copper (Cu) Aluminium (Al)
Official Close
3 Mon.Ask
LME stocks in mt
September 13, 2018 October 11, 2018 Delta in mt Delta in %
Nickel (Ni) 233.988 224.928 – 9.060 – 3,87%
Copper (Cu) 225.125 170.100 – 55.025 – 24,44%
Aluminium (Al) 1.051.200 941.500 – 109.700 – 10,44%

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