Green Energy = green dilemma

The start of the year anything but boring
Full order books, little scrap, political unrest in Kazakhstan, one of the main chrome producing countries, and the completion of a company acquisition whereby a large European producer takes one of the three big stainless steel scrap recyclers on board. This is how the situation on the stainless steel market can be characterised at the start of the year. The nickel price has been, however, more driven by macroeconomic developments. New uncertainties have been caused by the rapid and strong spread of the Omicron variant. Apparently, it is less severe but with a higher infection rate as the effectiveness of vaccinations wanes. The fact that politicians, parliament and some important authorities in Germany, and elsewhere, were on holiday seems somewhat grotesque in view of the threats of the pandemic. Reliable data, therefore, have so far been lacking or are at least, distorted.

It is no surprise that investors, who are different to officials and hardly ever take a break, have been keenly watching developments and are trying to make sense of them. The American Central Bank, the Fed caused big unrest with comments that the markets should prepare for an even faster change of course in monetary policy. The Federal Reserve’s balance sheet should be reduced more quickly, and interest rate hikes could happen more often. This was inferred from the minutes of the last Federal Bank meeting. The Fed is, therefore, going against the previous (very political) arguments of the European Central Bank (ECB) and finding its old strength and independence once more.

This is unfortunately not the case for the ECB, even if there may have recently been signals of a tentative change in opinion. After Mario Draghi, the policy of loose money is now being continued by Christine Lagarde and the disturbing tones of obvious high inflation are being cleverly suppressed. Generally, the ECB has discovered quite a few new areas of activity for itself, such as economically financing those less sound EU states and protecting against climate change. It would seem as if it has lost sight of its actual goal of assuring monetary stability of the Euro.

With this in the background, nickel, after a year end and new year rally which saw prices for the 3 months future over USD 21,000.00/mt, has lost a little ground in the meantime, which has been attributed to the pandemic and inflation concerns or fears from, above all, speculative market participants of interest rate increases. However, there was a recent significant upswing again to just under USD 23,000.00/mt. So far though, this level could not be maintained. These prices are putting nickel into an overbought situation, so that short term corrections cannot be ruled out.

Motor industry reports historically low registrations
The car, Germany’s favourite child and a vital pillar of the national economy has had to suffer a lot in recent times. New registration figures have sunk to a new low and are at levels which have not been seen in the last thirty years. But it is not just the German car industry which has been hit, as it is also bad in the USA. In the meantime Toyota, in terms of units produced, has now overtaken General Motors as the largest producer. It would seem at the moment that only those automobile producers are faring well, who are in those domestic or export markets where mobility is still much in the foreground, and the sensibility of consumers, whether ideologically or for financial reasons, is not quite as pronounced in regard to sustainability and climate change.

One reason for the difficulties is the political desire to make a highly subsidised technological transition to electromobility, but the problem is even more compounded by the current bottlenecks in supply of materials, such as computer chips and micro processors because cars have developed into driving computers.

Whilst the development of new models with electric motors or with hybrid engines is also moving on quite dynamically, the existing demand cannot yet be satisfactorily served. On the other hand, there are still reservations, especially amongst private car buyers. There are still concerns regards the lasting value of vehicles where there is such a rapid development in technology. There are also massive shortfalls in the charging infrastructure, which has not been developed at the same speed. And so the branch finds itself in the situation, that on the one hand, not enough vehicles with the new technology are being produced and bought, and on the other hand, sales of new vehicles with the old petrol and diesel engines has already fallen sharply. It is, therefore, no wonder that the used car market is experiencing a renaissance at the moment.

It can also be expected that the last word has not been said on battery technology and the final direction the technology will go. Some manufacturers, such as Toyota, have set their sights on hydrogen propulsion, although so far more or less alone in this. This should not really affect the nickel and stainless steel sector much. Whilst the exhaust catalyst system of combustion engines classically uses stainless steel, which of course is missing in electro vehicles, the amount of stainless steel used in a vehicle was quite low due to its high specific weight. In exchange the use of nickel in battery production has been steadily increasing and there could also be new applications for stainless steel in battery technology and the charging infrastructure.

Heading into risk at high speed
The new Minister for Economic Affairs and Climate Action, Robert Habeck, is not a fool and on top of this comes over quite well in the media. That’s why he is now pressing on with the expansion of green electricity. And he has to deliver: to his voters on the one hand, and on the other to meet the climate protection pledges. With a gratifying openness he is one of the first (now) responsible politicians making it clear that the ambitious climate goals cannot actually be achieved. Such admissions would never have been heard from the Merkel camp. Yet Habeck would like to manage the balancing act between ecology and economy and also reality and daydreams and takes on this challenge. With a comprehensive package of measures, the expansion of wind power and solar energy should be further increased. That this cannot be completely accomplished without conflict is obvious. After all 2% of the land area of the Federal Republic is to be used for the energy conversion. This is not a small amount.

In an interview with the German TV news magazine “heute journal” (news today), he was asked in relation to this by the presenter about the future burdens on the public and companies from the energy conversions. With, of course, the considerable costs and burdens (but also chances) in mind, it is no easy task for Harbeck to talk these things down. Not unwisely, he points out that the high energy prices have currently risen so dramatically due to the “hunger for fossil fuels worldwide”, combined with foreign policy crises and speculation. Renewable energies on the contrary are part of the solution for affordable energy for consumers and business. The dependence of Germany on energy supplies from abroad could be reduced. First of all, of course, substantial investments in systems and distribution networks have to be made, but then positive results would show that the money has been well spent. This is certainly correct.

When the presenter pressed on and asked just what these burdens would be exactly, it became more and more clear just what our politicians, here and elsewhere, are made of. Minister Habeck said that we, this means every citizen, “would in 2023 often be cursing on the motorways as we will be driving behind the mechanisms which will be transported at 60 km/hour because of the expansion of so much wind energy.” Well, if that is the only curse. This likeable philosopher, German scholar and philologist could not be better characterised than with this sentence.

His party BÜNDNIS 90/THE GREENS may make up part of the government in Germany, but also have a definite dilemma for the brand core of this party is almost inseparably linked to the rejection of nuclear power. Some may still remember the demonstrations and campaigns with the round sticker with a red sun on a yellow background with the claim “Nuclear Power? No thanks”. In the meantime, however, Germany is quite isolated in Europe and the rest of the world with its dogmatic attitude towards, without doubt, the problematic nuclear power.

“Green” parties in other countries, such as Finland, have made peace with nuclear power, because they have recognised that in the short-term a major reduction in climate damaging emissions cannot be realised without nuclear power, or substantial losses in prosperity. This does not actually rehabilitate nuclear power, but it does make it a lesser evil. This recognition has not yet been made by the Greens in Germany for the reasons given above. The ideological conflict becomes even more explosive as the EU Commission has classified nuclear power as sustainable in its taxonomy regulation which determines what is sustainable and what is not.

However, the interview gets completely out of hand when the magnitude of the challenge for the energy transition is discussed. Habeck quite rightly points out that “if you set your sights on greatness, it is possible to fail”. The alternative would be to do nothing, out of fear of failing. Habeck does not want such a government. He would prefer to take all the risks and says “perhaps it is a success and then we can all be proud of ourselves.” If the Minister takes on this task with such an attitude that it only “might” succeed, then perhaps we have to really be worried. This is much too little for such a serious undertaking.

It is possibly not such a good idea that some top personnel lack certain basics for that particular specialist field. And the same can be said of course for other positions in government, past and present. If the Minister himself is not convinced that it will work, then he at least needs a Plan B, because incalculable risks should not be taken. It seems, however, that there are no alternatives nor any concrete risk evaluation, which, above all, is also a failure of the previous government. At the same time, the medium and long-term advantages of renewable energies are obvious.

India commits to the recycling sector
As the trade publication “Recycling International” reports, India’s steel recycling sector is to receive support from the government. An article written by Brian Taylor comes to the conclusion that the steel recycling industry on the Indian subcontinent finished the year with a lot of positive momentum which promises well for the future. The private sector is also expanding in the circular economy. The Indian industrial conglomerate and vehicle manufacturer, Mahindra Group, has announced the signing of a memorandum of understanding with the state of Maharashtra to set up a network of vehicle scrapping centres, in accordance with all the legal and environmental norms issued in India. By implication, the emphasis on this must mean that this is not yet the case with large parts of the current infrastructure. According to Sumit Issar, Managing Director of Mahindra, it is the company’s aim, from a sustainability point of view, to reduce the dependence of steel scrap imports and the conservation of natural resources, as well as the economic aspect.

In addition, as Taylor writes, the Indian steel Minister Ram Chandra Prasad Singh has openly endorsed the production of steel based on steel scrap and announced that all support would be extended. New scrap-fed electric arc furnaces (EAF) and induction furnaces play an important role in the national steel infrastructure strategy. These efforts come at a time when some neighbouring countries in Asia are scrutinizing scrap imports, despite the energy and resource efficiency of scrap based steel production. As the example of Mahindra shows, it is, however, more important that the activities in this sector are in accordance with the existing rules and regulations and recycling is left to professional and strong players.

VDI sees the circular economy as an export hit
In an interview, the renowned Association of German Engineers (VDI) also spoke about the immense importance of the circular economy. The industry is in a state of transition and must make the change from a linear to a circular based economy. For the steel industry this would be a significant advantage as the lasting materials of steel and stainless steel have already been playing an important role in recycling materials for many decades and are an essential part of business models and manufacturing processes. In the high quality stainless steel production in Europe, the majority of raw materials required are from stainless steel scrap.

The managing director of the VDI-Association Materials Engineering, Dr. Hans-Jürgen Schäfer, explains that the topic of sustainability was already spoken about in the 1970’s but no one had really jumped onto the bandwagon. However the realisation of its necessity has increased enormously in the last few years, not least due to the images of polluted oceans and the consequences of climate change. In addition, for cost reasons companies have had to think about the rising CO2 price, because the circular economy is increasingly becoming a competitive factor. According to Schäfer, the use of secondary or recycled raw materials can reduce energy requirements in metal production by up to 50%. Both studies, the “Scrap Bonus” and “the Scrap Bonus Concrete” compiled by the Fraunhofer IMW Institute, commissioned by the BDSV, also arrived at comparable conclusions.

The VDI is of the opinion that as far as the economically affordable sorting of secondary raw materials is concerned, then there is a great deal of potential in the automation technology, and it points out that the German economy is a global role model. Therefore, the transition to the circular economy will not only ensure existing workplaces but, above all, create new ones: “The circular economy has the potential to be an export hit”. It is about a completely new growth market. Also in the emerging markets, the idea of the circular economy is very often just in its infancy, politically and socially.

Goldman Sachs and BlackRock anticipate high commodity prices
The US Investment bank Goldman Sachs continues to expect that commodities are facing a super cycle. This could last a decade said Jeff Currie, Head of Commodity Research with Goldman Sachs in an interview on Bloomberg Television. At the moment there are market distortions in the areas of energy, commodities and agriculture. In addition there are immense amounts of money in circulation. Therefore Goldman Sachs predicts another record year for the commodity sector.

Already in October last year, Goldman Sachs dared to make the prediction that a super cycle could be imminent. Especially in the oil market there could be shortages, even if the OPEC plus members increase supply. Currie explained on television that the only two countries which today produce more oil than in January 2020 are Saudi-Arabia and the United Arab Emirates.

The investment manager BlackRock also expects raw material prices to remain high for some time, since the energy transition ensures a continued demand. Whilst infrastructure spending leads to more demand for steel and cement, decarbonisation requires more metals such as nickel. The view of the world’s biggest investment manager is that the whole of the mining sector continues to be undervalued. Investors are still ignoring the importance of the mining sector for decarbonisation. Evy Hambro, BlackRock’s Global Head of Thematic and Sector Investing said that this should change sometime, which will lead to new company evaluations. It would be a surprise if this will not be the same for the complementary sustainable recycling sector.