Sharp correction in nickel on the LME. Rally was not sustainable, driven by speculation. Export ban in Indonesia already causes concerns about changes to commodity flows. And that is just the beginning.

European Union has approached WTO because of the Indonesian export ban. The complaint is about future lack of access of European consumers to Indonesian commodities.

Developing countries also have a right to growth and prosperity. Industrial countries, as the polluters of the past, must become involved with environmentally friendly processes everywhere.

Every ton of stainless steel scrap used in production saves emissions of 23,000 vehicle kilometres. Study of the Fraunhofer IMWS on behalf of the leading German steel scrap association BDSV.

Nickel has sharp correction on the LME
Last month’s correction of nickel prices on the London Metal Exchange (LME), from the highs of over USD 18,000/mt to below USD 16,000/mt can only be described as Act One. Since then the market has slid further, especially since it gradually became clear that the buying spree of the ominous nickel buyer on the LME, and the continual warehouse stock depletions had come to an end. Nickel is now trading well below the USD 14,000/mt level. A fundamental cause for the prior rally had been, above all, the nickel ore export ban which had been brought forward in Indonesia. This has now been put more into perspective. Indeed, the exaggerated speculation which stimulated the market with massive purchases, especially in the Far East, should be pointed out. The Macquarie Bank poses here, quite rightly, the question about just what has become of all the metal.

On closer inspection, neither the upcoming export ban nor the somewhat, so far, modest demand for battery nickel have proven to have a sustaining effect. But the Indonesian trade restrictions are, of course, not without any impact. The authorised exports of unrefined nickel ore until year end rose in October by 23.4% compared to the previous month. Chinese buyers would like to stock up as much as possible before the ban comes into effect. In October, Indonesia’s nickel ore exports were 3.11 million tons, an increase of 132% which is more than double of the previous year. A similar development had been seen when export restrictions had been imposed at the beginning of 2014 only then to be lifted again. This shows how quickly commodity markets anticipate certain developments and are able to react to changes with certain direct adjustments to commodity flows.

European Union approaches the WTO with complaints about Indonesia
The European Union (EU) has complained to the World Trade Organisation (WTO) about Indonesia. Specifically, the complaint is about the export ban of unrefined nickel ores and other commodities brought forward by Indonesia. Primarily, the domestic Indonesian stainless steel producers and smelters are able to benefit directly. According to Reuters, the EU’s argument is that the trade restrictions do not give EU producers access to these commodities. The important influence of this protectionist trade policy on the nickel and stainless steel market is beyond dispute and certainly open to criticism.

The export ban will give Indonesian stainless steel producers with affordable commodities an undue advantage in international competition. Prices for alternative commodities, because of bottlenecks arising outside of Indonesia, could also rise steeply. This could be seen in the nickel price on the LME over a certain time span in the course of this year. Almost anachronistically, stainless steel scrap saw none of these signs throughout the whole of 2019. It is, of course, not to be excluded that the information given to Reuters from the EU has come by way of the Chinese Whispers game and so may have become a little distorted. Journalists are, after all, no geniuses as is well known.

However, the report of Reuters is most probably not totally wrong in that commodity and steel production in Indonesia produces many times more CO2 than operations in Europe, where clean stainless steel scrap is also a helping factor. In the view of the European Steel Association EUROFER there is, therefore, the risk that artificially cheaper and non environmentally friendly steel can replace the cleaner steel of European producers and other traditional trading partners. This cannot be in the interests of the world community nor that of Indonesia, for developing nations will be the ones to first and foremost suffer from the catastrophic consequences of climate change.

At the same time, Indonesia has made its wishes known that it intends to move its capital city, along with government and parliament, from Jakarta, making its seat in the future on the island of Borneo. This is far removed from its policies. The reason given for the move is, above all, that the megacity is threatening to sink into the sea, with the continuing rise in sea levels. 40 percent of Jakarta is below sea level. And climate change is making sea levels rise. In the end, it cannot all be about the profits of industrial nations, although in history, during the industrial revolution, they certainly played a huge part in contributing to climate change.

Developing nations also have a right to growth and prosperity. However, this should not come about through destructive competition which destroys the environment. It should be about the battle, or better said, contest, to achieve cost-effective production in environmentally friendly conditions, and on a fair playing field. It looks more like as if China has a master plan and Indonesia is the pawn of global steel markets, but this, of course, is only an assumption. But everything could be done differently if, in exchange for realistic environmental terms in Indonesia, the local market, with at least 250 million consumers, could be protected from imports for a certain time, and perhaps even environmental investments could be financed at marketable conditions by industrial countries.

This would help everyone, except the short-sighted who are determined to fill their pockets at the expense of nature. Regarding Indonesia’s export of steel, there could then be a waiver on trade barriers – in comparable conditions. Everyone then would be in fair competition with regard to innovation, and especially even the steel industry in Indonesia would become more competitive in facing international competition. Protectionism in an unrealistic setting has the opposite effect, and, whether anyone has ever really earned a lot of money in such conditions, has never been made public. Modesty or shame, is that the question here? Whatever steps the WTO may take on this, there remains the present blockade mentality of the USA. No decision about this is expected before the end of a year.

Fraunhofer IMWS: Every ton of stainless steel scrap saves emissions equal to 23,000 car kilometres
Scrap is a crucial commodity in steel production and contributes enormously to the reduction of emissions. This is the conclusion made in the study “Scrap bonus – external cost and fair competition in the global value added chain of steel production”, undertaken by the Fraunhofer Institute IMWS and published mid November by the Federal Association of German Steel Recycling and Disposal Companies (BDSV). The conclusion is that the use of steel and stainless steel scrap in Europe reduces the cost of climate change by up to 20 billion Euro per year.

The usage of scrap saves, in comparison to steel production from primary commodities made from ores , huge amounts of CO2 emissions. And other environmental damages, such as, for example, the pollution of waters, summer smog or eutrophication, are all reduced by the use of scrap. In order to make these savings more explicit, an indicator “scrap bonus” was introduced for the study. It shows how much climate and environmental costs can be avoided by the use of one ton of scrap, either steel or stainless steel, in steel production.

Scientists have come to the conclusion that the steel industry, by using one ton of recycled scrap from stainless steel saved 4.3 tons CO2 in stainless steel production. This means: if one ton of stainless steel scrap, as raw material input instead of primary commodities, is used, the CO2 saved is equal to the emissions of an average petrol driven car in Germany over a distance of about 23,000 km. The research team has determined that the scrap bonus is between 158 to 502 Euro per ton stainless steel scrap.

In the study, the preventable emissions have been determined by analysing the cycle in the formation of emissions during the production of steel along the value chain. This includes an unbroken recording of the environmental footprint of materials used, from mining, production and usage of raw goods via the use of energy sources to the processing of residual materials.
More details and the full report of the study can be found via the following link (actually in German but an English translation is in process):

Australia’s Prime Minister prioritises economic interests over environmental policies
In a speech during the LME Week in London, Jean-Sébastien Jacques, chairman of the British-Australian Mining company Rio Tinto, stressed the need for sustainable action in regard to climate change. As well as this, mining companies should take responsibility for the challenges facing society in order to still be profitable in the future and to be of social relevance. His speech was greeted with hearty applause and interesting feedback.

Only a few days later, the Australian liberal-conservative Prime Minister Scott Morrison, of all people, contradicted the initiative of Jacques. At a meeting with an interest group of mining companies “Queensland Resources Council”, the Prime Minister even proclaimed that steps are being undertaken to restrict the rights of climate protesters to demonstrate. Morrison sees the “indulgent and self-centred practice” of environmental activists as a danger to the livelihood of Australian citizens. This was certainly not a great moment in the history of the fourth longest intact working democracy of the world. Together with other conservative politicians, such as Donald Trump, Scott Morrison supports mining operators, especially those of coal mines.

EU standards could reduce the amount of deceptive hoax emails
Criminals cost the German economy 102.9 billion Euro annually. This is the conclusion of a study made by the German Association for Information Technology, Telecommunications and New Media, Bitkom, which surveyed about 1000 companies in Germany.

The fake President scam, whereby firms are coerced into making a transfer of funds by use of fake identities is the talk everywhere at the moment. Phishing also presents a danger. This is when criminals send emails in the name of companies, or other seemingly trustworthy sources, in order to obtain sensitive information from the recipients. The industry already offers safety measures with qualified electronic signatures. The recipient can be assured that all content is received without manipulation and the sender really is who they are supposed to be.

Here politicians could increase safety levels by introducing a European wide standard. For example, all companies could be compelled to make sure all emails of employees have qualified electronic signatures. The argument against this is that Germany is strongly internationally involved, and there are still numerous foreign companies who do not have such a signature. However, email communication would be seen in a better light with a safer and more reliable system.

We wish all our readers and their families a Merry Christmas and all the best for the New Year.

LME (London Metal Exchange)

LME Official Close (3 month)
December 9, 2019
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
LME stocks in mt
  November 11, 2019 December 9, 2019 Delta in mt Delta in %
Nickel (Ni) 65,064 69,276 + 4,212 + 6.47%
Copper (Cu) 234,200 190,825 – 43,375 – 18.52%
Aluminium (Al) 940,500 1,288,150 + 347,650 + 36.96%

Oryx Commodity News

Oryx Commodity News informs about current, industry-relevant topics.