5

Nickel robust. Stock markets lead developments. New vaccines give message of hope. Shifting of investment funds from industrial metals to other securities.

5

Monetary policy of central banks governs events. Immense costs to maintain certain normality. Huge burdens for future generations. Therefore all expenditure must be justified.

5

Joe Biden set to replace Donald Trump. Legal and verbal battles. What remains of Trump? His legacy is diverse. Flamboyant too. Those written off still show life.

5

South Africa will impose an export tariff on chrome ore. Market participants have differing opinions on the effects this may have. China is heavily affected. Another reason to use more stainless steel scrap.

Nickel strong, China running at full power
Nickel prices on the London Metal Exchange (LME) have been a little more positive and asserted themselves quite well last week, trading within a range of USD 15,000/mt to USD 16,000/mt. The latest reports of two promising vaccines with probable high effectiveness, however, have meant that the industrial metals have, for the time being, lost the stopgap function for investors seeking investments with good returns. Instead, stock markets are booming globally again, in anticipation of concrete hopes that the pandemic can basically be overcome in the not too distant future. Cheap money from the central banks takes care of the rest.

Nevertheless, a normalisation in regard to the pandemic paralysis will also, of course, have a positive effect on nickel demand and prices. On the other hand, it is with mixed feelings to see that Chinese stainless steel production is running at full speed once more, albeit with more emphasis on volume targets rather than profitability. Presumably it does not matter there either as long as the state pays. The high output, which is not (yet) in line with demand and also the globally implemented trade restrictions on imports of Chinese stainless steel are certainly being ignored deliberately.

Actually the Chinese market must be a little concerned when the stainless steel future falls to a five month low on the Shanghai Futures Exchange (SHFE), even though China’s economic performance, after the apparently successful handling of the pandemic, is very impressive. Either way, it can only be good for stainless steel scrap in the region, for word has also already spread to China that scrap is the most sustainable and cost efficient raw material for steel and stainless steel production.

Monetary policy continues to govern events
However, prudence and deliberation should always be urged, especially as just two headlines do not make a summer, and large parts of the world are currently in the winter half where most viruses have optimal conditions to spread. Unless we are talking about hard lockdowns, which will always precede considerable economic losses and other collateral damage. Setbacks, therefore, do have to be expected during a longer way of recovery.

Apart from this, it is a mystery to this economically educated author where all the money can come from, when, despite the situation and measures, certain normality is being suggested to people and businesses, which, on closer inspection, does not exist. Quite a considerable part can indeed be contributed to the money printing press of the (European) Central Bank which, contrary to its actual mandate, likes to participate in financing national budgets by purchasing government bonds as part of its monetary policy.

Ultimately, the people, especially the children of today and future generations, will have to pay for the consequences. They may even be allowed, perhaps, to choose if repayments and the service of debt can be paid off by devaluation and a write off of savings, or, which would be more honest, by a dramatic increase in taxes and social security contributions. But, at the moment, hardly anyone, certainly not any politician, is giving this much thought.

But, whoever does not accept that it’s an illusion for unproductive companies and employees, because of present circumstances, to be financially supported at significant costs and consequences, is seriously mistaken and can no longer be helped. The best of all evils would be to extend the repayments possibly over the course of the next decades and centuries, so they are not as noticeable. But then, these funds are in turn missing in other places, for example, in research, innovation and digitalisation. It is, therefore, not at all irrelevant, despite statements to the contrary, how much money, and for what, the state can blow away every week at the moment.

What remains of Trump?
The election in the USA seems to have been decided, even if the outgoing President is still battling on with verbal and legal rearguard attacks. Donald Trump amused the world, paralysed, shocked, annoyed, and, at times, had it holding its breath, and also fascinated some. So it could really be easy to summarise the legacy by using the infuriating and unbelievable quote of the President and lady-killer “Grab them by the pussy, you can do anything”. But this would probably be just a little too brief. Whilst President Trump has shaped and cultivated a political style, right up to the very end, which is still taking a lot of getting used to, not everything that he very loudly and unorthodoxly put on the agenda was totally plucked out of thin air. For example, the USA and China certainly have their own positions which hardly ever coincide. States just do not have friends, only legitimate interests and these interests have to be fought for.

By its very nature, this leads to conflicts. Therefore, Germany and Europe must recognise, formulate and represent their interests to the outside world, and if possible also assert them. Politicians owe this to the voters and the public. In this context unpleasant truths should be named and discussed. Trump has also taught that everything which is written and said should not be believed. Media, such as Fox News, but also CNN and also social media like Twitter, stood and still stand for at least selective reporting. Development of media literacy is the keyword here.

It is also a legacy to continue talking to the potentates of this world. When wanting to achieve something in one’s own interest or in the interests of people or neighbours of these countries, there has to be dialogue. Unorthodox approaches were seen with Trump, but unfortunately, in essence, it was more about appearing in front of the media than the message and diplomacy behind the scenes. The sharp criticism of the political caste does also certainly seem legitimate. Dynasties such as Bush Senior and Junior, as well as the Clintons and the fact that Joe Biden has now made the umpteenth attempt at becoming President are not really a glorious chapter in the history of the USA as one of the biggest democracies in the world.

Now an era is coming to an end and there are none too few who will mark this with relief. But will everything be better with President-elect Biden? Presumably yes when it comes to style. When it comes to politics this is yet to be seen. The result tends to suggest that it was more a matter of voting Trump out than voting Biden into office. Therefore, hopes in the USA are strongly resting on the new leadership team or the Vice President. And those written off can still have a long life. It cannot, therefore, be discounted that a personality with staying qualities like Trump can once more appear on the political stage. Then it will depend on the record of Biden and Harris and on whether the Republican Party can regenerate itself whether he would have another chance or not.

Claus Kleber has done a disservice to quality journalism
In the news programme ‘Heute Journal’ on 16.11.2020 on the public service channel ZDF, the normally well-liked and basically renowned presenter, Claus Kleber, blew a fuse on the subject of corona. Obviously out of personal concern and dissatisfaction with the “lean” decisions from the exchanges between states and the Federal leadership after two weeks of “Lockdown Light”, he could not withhold an outburst in an interview with the deputy Minister President of North Rhine-Westphalia and Minister for Children, Family, Refugees and Integration, Dr. Joachim Stamp. Class rooms and schools are “super spreaders” of the virus after all and he called for an indiscriminate renewed closure or at least partial closures.

And then he also became involved in the theories of virological scientific studies in regard to infections in schools. Presumably, Mr. Kleber had forgotten in that moment that the central task of an anchorman, as a journalist, is to enlighten the audience with facts by putting questions, even critical ones, to a very calm, objective and unflustered interviewee. It did seem that Mr. Kleber spent more time talking about his own opinions rather than giving the interviewee time to give the answer, while continually interrupting him.

Irrespective of content and subject matter, where opinions can differ, it would certainly be the time now for the director of ZDF to have a well-deserved one to one conversation with Mr. Kleber and remind him what he presumably learnt at journalism school. Of the type of quality journalism should embody, and what should be expected,especially in public media.

South Africa levies an export tax on chrome ore
On the 22nd October, the South African government surprised the chrome market by introducing an export tax on all chrome ore exports. South Africa is the world’s largest exporter of the raw material which is needed to produce the master alloy ferrochrome. A large part of ferrochrome production in turn goes into stainless steel production. This government decision, therefore, has a significant impact on the global chrome and stainless steel market.

Only 10 years ago South Africa was the biggest producer of ferrochrome. But since then the country has found itself in a difficult economic crisis and China has taken this title away. Nevertheless, South Africa still has the biggest chrome ore deposits so that China is still dependant on South Africa for the raw materials in its ferrochrome production. With this export tax, the South African government is trying to support most of its domestic ferrochrome producers so that the value added stays in the country. In addition, the export tax should lead to the creation of new jobs in South Africa and, at the same time, according to the government’s calculation, bring urgently needed tax revenue into government coffers.

The government has been discussing the export tax for more than a decade. The economic consequences of the coronavirus have obviously played a part in the decision making process. If the opinions of various market observers are to be believed, then the government plan could work out. Chinese ferrochrome producers can do no other but pay the higher price. For, either Chinese companies can accept tariff related price increases, or they forego South African raw materials, which in turn would lead to mine closures, a scarcity in supply and price increases. This is the summary of the news portal Fastmarkets after discussions with industry experts.

However, there are also market participants who doubt the effectiveness of the export tax, especially as South African ferrochrome producers have fundamental problems which the export tax does not tackle. For example, electricity prices have increased more than six fold in the last decade. Whilst experts fully expect a further increase in South African electricity prices, China is predicted to become more energy efficient resulting in lower electricity prices. Since ferrochrome is traded in US-Dollars, the rising electricity prices were compensated by the continuous devaluation of the South African Rand.

China encourages the use of steel scrap
At the end of October, the Central Committee of the Communist Party of China issued an official statement declaring the objectives of the next five year plan. While in the past the goals were formulated precisely, such as the creation of a high-speed network of 45,000 kilometres by 2016, the new goals have been kept rather vague. Nevertheless, the objectives, which also include areas of business, science and environmental technology, are ambitiously formulated.

For example, the communiqué stipulates that by the year 2060 China will be carbon neutral. An important factor is the further development of the steel sector, moving away from the blast furnace smelting plants using primary raw materials, towards electric arc furnaces using sustainable steel scrap. Currently, at the moment, Chinese blast furnaces using iron ore and coke still have a share of about 90% in production infrastructure. In this context, it is also expected that China will allow the unrestricted import of steel scrap again in the near future. The formal approval of the five-year plan will take place next March.

Almost at the same time, the Chinese commodity exchange, Dalian Commodity Exchange (DCE) announced the introduction of a futures contract for shredded steel scrap. According to a spokesman of DCE, shredded steel scrap tends to have a more homogeneous quality and specification than a heavy steel scrap and is, therefore, particularly suitable for the production of sustainable steel. The exact date for the introduction of the contract was not announced. However, on the whole, it is becoming clearer that China is putting a higher emphasis on steel and stainless steel scrap.

ASEAN Countries agree the world’s largest trade pact
After negotiations lasting eight years, fourteen countries and China signed the free trade agreement Regional Comprehensive Economic Partnership (RCEP) on the 15th November 2020. The agreement encompasses 2.2 billion people and about a third of the world’s economic output. The pact promotes global trade and is a clear success for China. RCEP reduces tariffs, defines common trade regulations and so eases supply chains. Furthermore, the agreement covers other areas, including trade, investment and telecommunication. China’s signature is undeniable: free trade unions, workers’ rights and environmental standards are missing.

China has managed to open new markets and reduce dependency on the USA, whilst the USA, with President Trump, has been steering towards protectionism and have stopped both the Transatlantic Trade and Investment Partnership (TTIP) and the Transpacific Partnership (TPP). In addition, there has been a deluge of protective tariffs. There is also the added fact that China could further strengthen its foreign policy influence, although this is precisely what US President Trump, with his policy, wanted to prevent. The agreement is most possibly a difficult foreign policy legacy which Donald Trump leaves to his successors.

LME (London Metal Exchange)

LME Official Close (3 month)
November 18, 2020
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
15,777.00
USD/mt
7,101.50
USD/mt
1,994.00
USD/mt
 
LME stocks in mt
  October 19, 2020 November 18, 2020 Delta in mt Delta in %
Nickel (Ni) 237,342 238,980 + 1,638 + 0.69
Copper (Cu) 183,900 160,200 – 23,700 – 12.89
Aluminium (Al) 1,406,550 1,409,575 + 3,025 + 0.22

Oryx Commodity News

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