5

Trend in nickel is still alright. Recovery demand creates long delivery waiting times. Macro risks increased recently. Stainless steel producers show really good figures.

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Is the blue angel buying green steel? Reflections on wrappings and content. Clear definitions are definitely necessary. Colours are perhaps not the best alternative.

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New steel scrap index from Fastmarkets. Addition to the existing index family. Monthly averages of volume weighted sale trades. Prohibitive price policy disturbing.

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Tesla secures nickel for battery production. But not from the secret raw material reserves of China. At the same time BHP improves its carbon footprint. Win-win therefore?

Nickel trend can continue to hold its ground
Despite certain volatility, the positive trend of nickel on the London Metal Exchange (LME) remains intact. Meanwhile the high of just under USD 20,000.00/mt at the end of July could not, so far, be defended. After a correction, which led to a price of USD 18,600.00/mt, there was a renewed upwards movement of about USD 1,000.00/mt on the upside. At present, the alloy and battery metal is trading lighter again at around USD 19,000.00/mt.

Even if the general economic risks have recently increased again, because of the pandemic, a weaker growth in China and the sudden events in Afghanistan, demand for nickel is characterised by an obviously quite considerable recovery demand and logistics restrictions. Not only computer chips, but also raw materials and building materials are in short supply. The current delivery times of, for example, white goods – such as dishwashers and washing machines – were previously only known for certain new car models that were in particular high demand. This market environment is also reflected in the very healthy figures of the stainless steel producers for the 1st and 2nd quarters of 2021, as well as in the outlook for the current 3rd financial quarter.

States and governments in default on deliveries
Sometimes nowadays, it could be thought, that the world has been taken over by some supernatural force. In almost tragic regularity, the media has to report about torrential rainfall and floods, record temperatures and forest fires, and most recently, earthquakes and military developments and evacuations in Afghanistan. And this is in a time which is already symbolised by a major worldwide pandemic. Yet most of these events are not coincidental or as surprising and unmanageable in their consequences as they may seem.

In research of media and politics, it has become apparent that it is not uncommon for states, their institutions and bodies, and also individual decision makers, to reach the limits of their capabilities. Sometimes, it is simply only a matter of failures in leadership and management, which, logically, can be in small, medium-sized and large companies. Also, well intentioned does not always mean well done, and with even the best of intentions, a great deal of damage can be caused. The caring and forward-looking community seems to be more a wishful thinking of people who usually prefer security to insecurity.

If the foregoing is correct, then there is still something positive to be gained from the present situation, as bad as it may seem. For if something should be improved then it can be improved. And this gives perspective. Potentials also have to be raised, but the human being is actually made for this. But to move away now from perhaps a little too much philosophy and back to reality and concrete possibilities for the person in the street to exert influence. Amongst other things, the upcoming elections in Germany could bring new impetus. Every vote is important and should be used.

Why “green” steel actually?
There is hardly any newspaper or magazine which does not report on Green Steel. There is also the EU with its Green Deal. It seems to be the accepted way now to associate the colour with sustainability and type (of production). Perhaps this arose from green being the colour of forests, plants and nature. Or, the so-called Green Parties, established in the meantime in many countries, which have contributed to this association with their demands and programmes. Turns of phrase, such as “green with envy” which does not describe something in a positive way, show that the colour green was not always seen in a positive light. In Germany for example, for the last 40 years the environmental label was the Blue Angel.

Now, and not just for these reasons, business, policy makers and certifiers should seriously consider whether they want to continue with this label, Green Steel, which resembles a marketing gimmick with empty words. For what is behind it is neither defined nor laid down anywhere. This point can and should be worked on of course more directly, but why not come directly to the point which all the terminology is about: sustainability, which includes the sub-goals environment, social affairs and governance, or in new talk, ESG. Labels such as Sustainable Steel or a Sustainability Deal would then describe things much more aptly. And even if this would just mean that other colours are not being discriminated. Is it Red’s fault that it is red?

New transaction based steel scrap index from Fastmarkets
As the news and price data service Fastmarkets/Metal Bulletin announced, a new transaction based steel scrap index was introduced on the 2nd August 2021. Its full name is the MB-STE-0894 steel scrap, HMS 1&2 (80:20 mix), month-to-date deal weighted average, North Europe origin, cfr Turkey, US$ per tonne. This should supplement the already existing daily price index for steel scrap deliveries of the quality HMS 1&2 (80:20 mix) from North Europe to Turkey.

The difference to the already existing index is that the new index only includes prices of actually completed transactions, whilst the old index takes into account not just real transactions but also offers and estimates of market participants. To calculate the average the respective contract prices are weighted with the transaction amounts. With each day that there are reported transactions the average value changes accordingly. There is a new calculation at the beginning of each month. No information was given on the question of how many companies submit price reports.

Now it could be presumed that doubts about representativity have been the driver behind this addition to the Index Family – doubts which, by the way, have been expressed in regular succession by market participants, depending on whether the price has been subjectively felt to be too high or too low. In all probability, however, Fastmarkets/Metal Bulletin possibly wanted to create a more realistic alternative to the corresponding index of the competitor Platts. The Platts quotation is actually the basis for the steel scrap future on the LME.

There has recently been considerable criticism from market circles about the prohibitive pricing policy of data providers which has also already led the industry to consider turning away from these services for cost reasons. It is, therefore, no coincidence that Argus Media has established itself as yet another serious provider for commodity and energy benchmarks over the past few years.

It is also regrettable that Fastmarkets/Metal Bulletin has, in the meantime, discontinued the longstanding Stainless Steel 304 Europe Raw Materials Index. This was a good reference for the price development of the commodity mix relevant for the stainless steel production of AISI 304, and, similar to the Platts quotation for ferrous scrap, could have been used as the basis for an LME Future for stainless steel raw materials.

So far, it has been customary, but not necessary optimal perhaps, for the stainless steel alloy to be broken down into individual components, nickel, chrome, iron and, if applicable molybdenum, in order for market participants to make their price hedging. At this point, it should also be said that the manufacturing industry’s lack of interest in the index also contributed to its discontinuation.

China’s secret raw material reserves
Whilst prices were rallying on the commodity markets, China released raw materials from its strategic reserves for the first time in a decade. The intention is to relieve producers who are burdened on the input side by rising prices. As well as metals, coal and corn reserves were released and pork was purchased in order to support the market.

Experts estimate that China stores between 1.5 and 2 million tons of copper, 800 to 900 thousand tons of aluminium and 250 to 400 thousand tons of zinc. In addition it is believed that China has about 7 thousand tons of cobalt, a key commodity in battery production, in storage.

As well as the aforementioned metals, China has also storage capacities for grain of 650 million tons, which, according to their own admission, is enough to feed its population. The warehouse stocks of rice and wheat, which make up about 70% of the grain stock, should be able to cover consumption for more than a year. In comparison the strategic reserves of the German government consist of about 0.9 million tons grain, rice and pulses (as per 2019).

Tesla secures nickel supply contract
As reported by the FAZ newspaper, the aspiring electric vehicle pioneer Tesla and the Australian mining giant BHP have agreed a long term supply contract for nickel. The agreement is perceived by the latter to be a relief for the recently weakened nickel division “Nickel West”. This is quite remarkable considering that up to 2019 attempts had been made in vain to sell the division to Chinese or Canadian investors, due to a lack of suitable future prospects.

In the second half of 2019 already, Nickel West supplies to the battery industry were about 80%, a significant increase compared to the previous year, when the share was still below 60%. In addition, the nickel sulphate production should be now increased threefold, i.e. from the present 89 to 300 thousand tons in the future. As well as the financial returns, the battery related nickel production should also (optically) improve the mining giant’s carbon footprint. Fittingly, BHP announced its intention to sell its oil and gas business.

Last year, Tesla had already let its intention be known that it wanted to enter into long-term nickel supply agreements with battery manufacturers. At that time, Indonesia had still high hopes of being able to supply the American company. However, this hope has been crushed in view of the contract with BHP and another supply agreement with a nickel mine in New Caledonia. Industry experts expect that BHP will supply Tesla with around 18,000 tons per year, which currently corresponds to about 25% of its annual production.

Because of the increased demand for nickel, also because of the battery industry, the nickel price has already risen sharply, and, at around 19,000 USD/mt is about 30% over the previous year’s level. BHP expects that the demand for battery nickel will increase more than fivefold over the next ten years. The former head of the Swiss raw materials group Glencore, Ivan Glasenberg, announced some time ago that nickel production has to increase annually by 250,000 tons to be able to keep pace with demand from the battery industry.

Similar price development with industrial metals
Copper, aluminium and nickel together form the co-called metal complex, since they have phases of moving in the same direction in terms of price. The background is that they are all important raw materials essential to industry and have therefore a dependence on the general economic trend. Global demand for industrial metals, since the early years of the new millennium, has shifted from the Western industrialised nations to Asia. China’s rapid rise to become an economic power is accompanied by an insatiable appetite for resources. Meanwhile China is the biggest consumer of industrial metals. It is, therefore, not surprising that all industrial metals have a certain correlation in demand, formerly from the Western industrialised nations, today from the East Asian emerging markets.

On the supply side, the industrial metals have in common that a large part is extracted from mines. For example, a lot of mines had to temporarily stop operations because of the corona pandemic causing a shortage in supply of the industrial metals. The current increase in freight costs and the quarantine measures for ship crews also led to a supply shortage for all industrial metals. In addition, these metals for example copper and nickel are also associated with the corresponding ores, so that there is also a certain technical connection on the supply side.

As well as supply and demand, there is a third component which influences commodity prices. Investors and speculators can suddenly turn their backs on supposedly riskier investments and so influence the prices of the industrial metals. Since copper, aluminium and nickel belong to the group of metals with the highest turnover on the London Metal Exchange, they are of particular interest to speculators. Finally, there are also practical reasons for investors which speak for industrial metals: Copper, nickel and aluminium are easier to store than crude oil or agricultural raw materials.

LME (London Metal Exchange)

LME Official Close (3 month)
August 18, 2021
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
19,012.00
USD/mt
9,168.50
USD/mt
2,571.50
USD/mt
 
LME stocks in mt
  July 16, 2021 August 18, 2021 Delta in mt Delta in %
Nickel (Ni) 223,248 199,110 – 24,138 – 10.81
Copper (Cu) 224,175 245,125 + 20,950 + 9.35
Aluminium (Al) 1,457,800 1,315,125 – 142,675 – 9.79

Oryx Commodity News

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