5

Nickel prices much firmer. Few fundamental reasons. Fantasy of interest rate cuts in USA and elsewhere. Indonesia wants to tighten up on the export ban again for nickel ores as of 2022.

5

Game changer NPI is relevant short term. China is clear-cut in its countermeasures. Stainless steel from Indonesia subject to import restrictions. An export ban on nickel ore will not just be simply accepted.

5

Project costs for battery plant are running out of control. Laws of economy rule everywhere. But not transparency and market conformity. Fairness has to be established through regulation.

5

USA planning a strategy to safeguard strategic metals. Commodity NATO is tested. Vale ordered to pay compensation for the dam collapse in Brazil. ThyssenKrupp likes the Finnish.

After the G20 summit in Japan and especially after the somewhat conciliatory bilateral talks between the USA and China regarding the trade war, nickel prices were able to recover on the London Metal Exchange (LME). At the start of the second week in July, nickel closed almost USD 1,000.00/mt higher. Even in the third week the recovery continued and prices of around USD 13,600.00/mt have been reached in the meantime. It has to be seen whether real economic data warrant this level. As the head of the US Federal Bank announced that interest rates would be lowered, Indonesia also announced the reintroduction of a strict export ban for nickel ores.

The Indonesian General Director for the Ministry of Energy and Mineral Resources, in a hearing before the House of Representatives, said that the ban could come into effect from 2022. This would be when Indonesia is in the position of processing its own ores to produce NPI. As of 2022, the Ministry is planning on having 41 operators, which would include 22 nickel smelters. The aim is to stop exports of nickel ores after 2022 and export more NPI in order to generate a higher value for the domestic economy.

The influence this will have, however, on the nickel market is still in the future. This is perhaps why the present nickel price level remains a little surprising seeing as the largest buyer of nickel, the stainless steel industry, is showing some weakness at the moment, if only due to seasonal and summer influences. But since unlinking the real economy from the financial sector, fundamentals hardly play a big role anyway. Even share prices, despite weak US economic figures, could make significant gains due to expectations of a change in trend of the interest rate policy of the US Federal Bank.

And this is happening even though the global economic outlook is not looking very rosy at the moment. Indeed, since figures from the USA are better than expected, it has even been speculated that interest rates could perhaps rise even more, giving way to an immediate threat for a stock market recovery. In just what type of world do we live in? Where are the governments and politicians to create reliable trade frameworks for companies, and markets which reflect prices based on genuine supply and genuine demand? Not there.

Also Brexit, long considered to be one of the biggest burdens for the economy, is hardly discussed in the media anymore. And a large part of the EU community seems to have become quite indifferent about what the British may or may not eventually decide. It appears as if a majority of the British – and the big minority have our pity and commiserations – will make their second biggest mistake since the end of the World War Two.

As Great Britain was, at the time, not a founding member of the European Economic Community (EEC), due to economic necessity it had to join later. Now, with an exit from the EU, this decision could once again have grave consequences. And so history repeats itself after all. Then, as now, the proud political elite in Great Britain could, and still cannot, really accept the vital political structure of the EU.

It is more a case of once again “Rule Britannia, Britannia rules the World” or “Global Britain”. Or do our neighbours seriously believe that bilateral negotiations with the USA and China will be easier done alone than with the EU. With an increasing tendency towards protectionism on a global scale, the hope of salvation can hardly be found in an even wider international orientation.

But let us return to the nickel market. In view of Indonesia’s latest announcements, it is once again time to look at the development of NPI production, a market segment of the primary nickel market which has often been described as a game changer. There is a little humbling gratitude not to be involved in the primary commodity industry, but to be active in the sustainable stainless steel recycling sector, although this is still much underestimated.

But even for the players in the NPI segment and its onwards regional valued added chain, conditions are constantly changing. Early in 2014 after the strict export ban on unrefined nickel ore in Indonesia, the Philippines eagerly stepped in to fill the hole as ore supplier to China. In the meantime, however, the picture has changed again. After the commodity crisis year of 2015, Indonesia eased the reins on exports and could increasingly profit from investments initiated by the export ban.

According to estimates of the Australian Investment Bank, Macquarie, the total nickel volume of NPI production in China and Indonesia could reach the amount of 930,000 tons in 2019. This figure also includes about 250,000 tons nickel in the form of ore exported from Indonesia for processing in China. An enormous amount. Despite this, there is no excess nickel supply, as the continuing increase in stainless steel production in China and the slowly increasing demand for battery nickel are especially able to absorb the additional nickel output. So it is no surprise that, according to an analysis by the Philippine nickel producer, Nickel Asia, nickel ore exports of high and mid-grade will fall this year to just 21 million tons from over 26 million tons in 2018. The reason for this, as expected, is the fiercer competition from Indonesia, as well as declining prices for the lower valued mid-grade ores. In addition, the Philippines are holding a moratorium on new nickel mining projects for environmental reasons. None of the active mines at present show a working life beyond 20 years.

But even the role model of Indonesia is showing signs of a slowdown. Whilst the forward integration of NPI producers in stainless steel production is certainly understandable, the additional amount produced has, however, still to be sold and consumed somewhere. And if China also closes its borders for Indonesian stainless steel imports, it can only be a matter of time before lobby attempts of the European steel industry and its association, Eurofer, result in the introduction of protections for the European market.

Just the Indonesian domestic stainless steel demand alone is probably not enough, despite alleged and perhaps even plausible cost advantages, to fully run the immense capacities profitably. Ultimately, in the medium and long term, economic laws cannot be overturned, not even in Asia. In the short term then, clear protectionist steps have to ensure market stability. Just sheer size and deep pockets do not suffice as an argument to destroy sustainably managed industry of other countries developed over decades.

And for this reason, the European steel industry continues to have meaning and importance. The earlier the political decision makers and institutions in Europe realise this, the better. It is not yet too late. And in this respect, the one dimensional stock market analysts who have already bid farewell to the European stainless steel industry will have to reconsider their views in the not too distant future. Even for the game changers, whose economic profitability and viability, incidentally, have yet to be proven, things are probably not running totally smoothly. Why are they reticent in revealing positive figures to the capital markets and investors?

Reuters reported that a consortium, around the Chinese battery producer GEM, has planned and already begun construction of a plant in Indonesia for the production of battery chemicals. The construction of such a plant usually takes at least four years, but they have set themselves the very modest target of two years for completion. Whilst the speed of the Chinese in building plants is certainly notoriously well-known, there are still some examples which were never completed, such as the coking plant in Brazil’s jungle, given by ThyssenKrupp on commission to the Chinese. But as well as the time scale, which, for the moment, we have to accept will be adhered to, there is of course the cost factor.

And this does become extremely outrageous. In September 2018, a favourable figure of 700 million US-Dollars was expected to be the cost of investment, but at the beginning of July 2019, Reuters reported that the project had been hit with unforeseen cost hikes. The costs for the project in Sulawesi, even with existing mine access, power plant and infrastructure, will now probably be more like 1 billion US-Dollar, or even more likely 1.5 billion US-Dollar, depending on the source. The battery producer GEM described this as a “slight deviation” from budget.

This project must be kept in vizier, at the very least to gain a better understanding of the actual capabilities of the Chinese market and that of other Asian players. The competition and their structural advantages should never be underestimated, but it is of no use in interpreting their potential in such a degree that hardly any fantasy is left for an adequate coexistence.  In Europe there are also considerable structural advantages for producers, such as stainless steel scrap and enormous process know-how. But these benefits will not be realized if, the scrap, taking in focus only the benefit of the ultimate consumer, will be forced to be exported to other markets.

The United States of America has laid out its strategy to safeguard important metals and minerals deemed critical to its defence and manufacturing sectors. The strategy paper of the American Department of Commerce contains a total of 61 recommendations. One of them is to check whether the commodity required is perhaps already available in the USA. Other recommendations envisage a review of regulations for mine approvals or a stimulation of recycling activities. In addition, in the strategy paper there is a suggestion of a commodity version of the NATO military alliance. Essentially the United States are aiming to reshape the global supply chain, reducing dependency on countries such as China and Russia.

A good half year ago we reported about the devastating dam collapse in Brazil. More than 200 people lost their lives and massive environmental damage was caused. At the beginning of July a court in Brazil ruled mining company Vale to pay compensation for the disaster. The company has to fix all damage caused. The amount of compensation has not yet been set, as the presiding judge has argued that this cannot yet be quantified. The court had already frozen assets equivalent to 2.6 billion Euro and this will remain blocked for compensation payments.

The German ‘mixed and still steel’ company ThyssenKrupp, favourite, or indeed “national champion”, of Economic Minister Altmeyer, seems to have a liking for Finland. In a purportedly strategic move, the stainless steel activities of ThyssenKrupp Nirosta had already been sold to the Finnish player Outokumpu Stainless, and now rumours are making the rounds that ThyssenKrupp could sell its elevators division to its Finnish competitor Kone. Presumably, after the failed talks with the Indian Tata Steel company, it is now considered better to try to deal with a counterparty more at home with consultations and negotiations based on European business values.

LME (London Metal Exchange)

LME Official Close (3 month)
July 15, 2019
Nickel (Ni) Copper (Cu) Aluminium (Al)
Official Close
3 Mon.Ask
13,450.00
USD/mt
5,995.00
USD/mt
1,830.00
USD/mt
LME stocks in mt
June 11, 2019 July 15, 2019 Delta in mt Delta in %
Nickel (Ni) 163,878 150,324 – 13,554 – 8.27%
Copper (Cu) 211,225 285,825 + 74,600 + 35.32%
Aluminium (Al) 1,096,300 945,375 – 150,925 – 13.77%

Oryx Commodity News

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