The casino is back in the nickel market. Shanghai Futures Exchange is the first. A higher nickel demand in China was at first given as the reason for the quick price rise.

According to rumours Indonesia is planning an early end to nickel ore exports. This is of course influencing the market. The President is personally going to make the decision.

And even the battery story has returned. Public media have headlines one after the other about the attractions of the nickel market. Research is sometimes quite questionable.

The real nickel market and its participants are clearly very surprised. Previous scenarios could be proven to have been too negative. Stainless steel is not a junk product.

That Chinese people love going into casinos has not just been known since the James Bond films and the legendary gambling scenes, for example, in Macao, the Eldorado for gamblers in the Far East. But what is happening now on the nickel markets of the London Metal Exchange (LME) and the Shanghai Futures Exchange (SHFE) is more than breathtaking. After the boom years of 2005, 2006 and 2007, nickel has been lurking in the shadows for many years, but in the last few weeks, all has seemingly changed. Starting in Shanghai with rocketing prices, this upswing logically also continued on the LME.

At first, the cause for the price increase on commodity markets in China, was given to the higher real demand of an improved Chinese stainless steel production. With Chinese anti-dumping tariffs against Chinese stainless steel producers ruling in Indonesia, a better utilisation of capacities and more demand in stainless steel raw materials are expected in China. Amazing! The Chinese Ministry for Trade declared, on 22.07.2019, that on the next day there would be an anti-dumping tax of 103.1% for certain stainless steel types imported from Indonesia, the EU, Japan and South Korea. This decision follows an investigation undertaken after a state company has made official complaints in recent years. According to an analysis of Fastmarkets, however, only about 4% of all stainless steels are from the EU.

Only three weeks later, the EU began an anti-dumping investigation for stainless steel types from China, Indonesia and Taiwan. This is expected to mostly involve PT Indonesia Tsingshan Stainless Steel, a subsidiary of the Chinese Tsingshan Holding Group and, volume wise, the biggest producer of stainless steel in Indonesia. Yet, with price rises from USD 11,500.00/mt to, at times, over USD 16,500.00/mt, these explanations do not really paint the full picture.

So, very soon, new rumours, and even contrary media reports, were doing the rounds. The Indonesian government could be planning on re-introducing restrictions on exports of unrefined nickel ores once again, which are still a major source of nickel supply for Chinese stainless steel production. This step had been previously planned, by the government, to take place only in 2022. According to the news agency Reuters, a possible export ban could be decided by the Indonesian President Joko Widodo personally. Since China, with certainly over 50% of stainless steel world production and also being an important global nickel consumer world-wide, such a supply shortage would, of course, come with consequences. But nothing has been decided yet.

The plan of the Indonesian government is obvious. As soon as the necessary infrastructure is in place, nickel ores should be processed domestically. Higher employment and economic growth would be the consequence, improving the affluence of the country. Up to now, the plan seems to be working. According to reports, many international companies are already planning on investing in Indonesia. The car manufacturer Hyundai would like to invest about a billion USD in a project in Karawang on the island of Java. The signing of the project contract with the Indonesian government is set to take place at the ASEAN conference in November. A consortium of companies in the field of E-mobility, which includes Daimler and Volkswagen, is even planning to open a mine on the island of Sulawesi. The focus is on cobalt and nickel. Toyota had already announced in December last year that it has spent about two billion USD in Indonesia for the development of new E-models. At the moment Indonesia is still the second biggest car manufacturer in South East Asia after Thailand.

However, markets are trading expectations and not truths, so that this episode is in order. But, in a scenario of (slowly) increasing sales of electro cars and a parallel increase of global battery production, more story tellers or investment whisperers, who have just been waiting for the right moment, come through the revolving door, re-acquainting themselves with well-known facts. Nickel had hardly started on its upswing – and totally against the trend of all other economic data and information – when public media suddenly woke up and started stirring up matters.

There is not any solid research made anymore, due to the economic difficulties of most news groups, so that even here, certain types of news reports are limited in quality. Not always to the benefit of the small investor or saver. This is certainly shown in many articles, including that of the renowned Frankfurter Allgemeine Newspaper (FAZ) on the 12th August 2019, whereby the author gives the headline of “Like Phoenix out of the Ashes” on an article about the upswing.

What, however, the gentleman has failed to reveal, perhaps hopefully due to his youthful inexperience and lack of contact with serious experts, is that nickel had already reached high heights of more than USD 55,000.00/mt in 2007, only to slide down to prices around USD 25,000.00/mt in the same year. Against this, the present situation is more like trivia. To state this more clearly: There is nothing against moderately and continually climbing nickel prices. On the contrary, this scenario stimulates business. But rocket-like increases, with incredible risks of a cosmic blow-out, are not good for a healthy market, except for short term speculators who try to make lots of profit with hardly any effort.

And so the sudden staunch rise of nickel prices, taking, presumably, nearly all traders by surprise, and also leaving stainless steel producers world-wide and the biggest nickel consumers, somewhat disorientated and helpless. This loss of orientation is, however, certainly understandable and with no malice. Steel manufacturers had actually been expecting a totally different scenario for the summer. And this has happened in the long holiday time when much of administration and hierarchy is away. Coordination is certainly not made any easier.

But a genuine stainless steel worker, who has seen such price movements in nickel many times during the last decade, is not too perturbed. But, he must certainly hope that the price rise may stimulate the stainless steel trade holding warehouse stocks, so that, as in the past, warehouse stocks may reduce, running parellel to an increase of orders with producers.

Here we are still of the previously expressed view that the present price movement does not herald a new uptrend. It is more likely that there is a long overdue and necessary correction to the nickel bashing seen from certain investment circles. This does not exclude an expected basic steadily increasing additional demand for battery nickel, if today’s technical status of electro mobility is taken into account. A nickel price of USD 11,000.00/mt was, and is not sustainable in a background of a nickel producer’s cost curve, with rising production costs in general, and decreasing nickel content of ores, with steadily increasing demand for nickel units, with less availability of stainless steel scrap.

Looking at the example of the weak performance of ferronickel producers in 2018, and in the first half year of 2019, it is actually clear what is meant. Even with the most efficient process, it has not been possible on previous price levels to make any profit. Furthermore, the FAZ article keeps silent on this, and the fact that we are talking about public media is not really an excuse, nor gives any comfort. Does this have to be? No, the reader has to be ready to pay again for quality reporting. This cannot be replaced by standard (online) news flow.

But back to the subject: Prices in a range of USD 13,000.00/mt and USD 15,000.00/mt are, presumably, today a more acceptable level and exactly there is where the market has moved to. With exchange rates, there would be talk of long-term movement of rates and purchasing power parity (PPP). Therefore, not really surprising.

Now it is really the unusual task of stainless steel producers and traders, after years of weak commodity prices, to explain to the customer this simple connection, instead of optimising sales at the expense of their own margin and the margins of the whole upstream value chain. Stainless steel is not a junk product, but complex and of high-quality in comparison to all other alternatives. And with an outstanding cost-benefit-ratio.

But after so many details, perhaps to have a rest, here is a colourful mix of something different. In far reaching circles of mainstream raconteurs in politics, economy and media it is good manners to highly praise the digital and virtual as opposed to reality, and to underline the unassailable lead the USA has over Germany and the EU in this field. This phenomenon has given us such insignificant words as “Internet of things” “agility” and “disruption”.

In this sometimes contemplation free environment, a true story may be told which perhaps could encourage some pensive thought about the general nature of statements and demands made. The FAZ reported, on the 14th August 2019, that the blogging platform Tumblr has been sold, or in other words, “flogged off”. About 6 years ago the nowadays not quite so “wrinkle-free” internet company, Yahoo, as an independent operator of the well-known search machine of the same name, made a perhaps not so well considered “move” to buy the blogging platform Tumblr. At the time the price was the proud sum of 1.1 billion dollars, leading to the 26 year old founder and chief executor David Karp to write to his colleagues “Fuck yeah”. A genuine masterpiece, if one considers that Tumblr at this time, despite a respectable user community hardly had any turnover.

After numerous write-offs, as well as management and ownership changes with Yahoo, or then Verizon, it has now been decided, after 6 years to sell it off. The online publication Axios has quoted, believe it or not, less than 10 million dollars. This can quite easily be called the destruction of money. And it is good that this episode is taking place in the USA, the master class of the internet. Now some may moan that some business dealings suffer some setbacks and who doesn’t dare, doesn’t win. But thinking has never harmed. And it is not improbable that some internet, mobile telephone or e-car companies may disappear again quicker than the Deutsche Bank. And that is saying something. As a shocking side note, it is sad that in the meantime, even the pornographic Pornhub is showing possible interest in Tumblr and not in Deutsche Bank.

And the moral of the story? Time after time, managers, investors, people in their greed for the quick and easily earned money, fall for these “opportunites”. And indeed, in these games, there are always winners and losers, just that there creation of value. Therefore the plea to decision makers, also in the world of the internet, new media and artificial intelligence is to not totally block out rationality, facts and figures. Apart from perhaps the USA, the world does not need bubbles but more realism. Money will not be earned by marketing and right timing alone, but long-term only with sustainable business models, which also satisfy a genuine demand.

Another phenomenon at the moment, but also magnificent marketing for a good cause, is Greta Thunberg, the leading figure of climate change for our children and grandchildren. This author hopes it is indeed politically correct to make such a statement, for the claims being made should, to a very great extent, be underlined. Even if the absolute cause of climate change has not been fully determined, it is still better to act today rather than to hesitate more. This was also true in the eradication of the plague. In scientific circles this is also called the causation ideal phenomenon.

A surprisingly short-term successful SPD party chairman and chancellor candidate Martin Schulz may take decades to rise up through the ranks to be able to prove his suitability and expertise, Greta has had it somewhat easier today. In all honesty, it is difficult not to be drawn to the very pleasant, easily recognisable face, very often or nearly always looking very concerned. There is not one television channel, daily newspaper, nor glossy magazine which has not had headlines about this young lady. As honest and authentic the motives hopefully are, the non-profit organisation Thunberg is however walking a thin line.

As the example of Schulz shows, a testimonial, despite the best motives, can very quickly wear off. For this, the scandal and attention seeking media needs only the slightest mistake. It is to be hoped that the school girl, with her “management” can keep things under control. Already there are early reports which criticise and analyse the “actual” carbon dioxide footprint of her sailing yacht to the USA. Yet it is also to do with symbolism. Or perhaps not?

The traditional German company ThyssenKrupp is being threatened with expulsion from the DAX in September. Since the former Chief Financial Officer Guido Kerkhoff took control, the share price has more than halved. Whether the even stricter saving policy of the company can be enough to save it is under question. The ban of a steel merger by the EU competitions regulators, the debt of around 5 billion Euro and the weakening car industry is crippling for the concern. The ratings agency Moody’s has also turned the thumbs downwards for ThyssenKrupp. The rating has been dropped from Ba2 to Ba3.

LME (London Metal Exchange)

LME Official Close (3 month)
August 19, 2019
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
LME stocks in mt
  July 15, 2019 August 19, 2019 Delta in mt Delta in %
Nickel (Ni) 150,324 149,640 – 684 – 0.46%
Copper (Cu) 285,825 330,125 + 44,300 + 15.50%
Aluminium (Al) 945,375 962,350 + 16,975 + 1.80%

Oryx Commodity News

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