No! – Yes! – Ohh!

Nickel market uninspired
In a publication, the investment bank, JP Morgan mentions that it finds the industrial metals complex somewhat uninspiring at the moment, now that the quieter part of the year is approaching. We cannot entirely share this opinion, as otherwise we could stop writing this report here and now. The London nickel price has been fluctuating over the last few days in a narrow band between USD 19,800.00/mt and 20,200.00/mt, after reaching the mid-October high once more of around USD 21,000.00/mt at the end of November. Even if a larger nickel supply can be expected for 2022 (cf. the comments in the last report), overall nickel supply continues to be anything but spectacular.

A new virus variant named Omicron – it is rumoured that the Chinese head of state prevented the use of the Greek letter Xi, actually intended for this – could also not really stop the robust demand for raw materials so far. The author does, however, wish that reports in the media, especially about new virus variants, would be based on reliable data and facts, rather than on speculations from individual sources. The latter does not help anyone and only serves to create even more panic than we have already. A report has been seen in a popular German newspaper (with four letters), that one paediatrician in London has claimed to be able to identify a skin rash on children as a new symptom of the Omicron variant.

It is not surprising that towards year end, in a phase of continued stable demand, a significant shortage of stainless steel scrap is noticeable. As well as a slightly lower amount of new scrap, the upstream trade is holding on to material. This has resulted in a backwardation (=premium due for prompt delivery) being seen on the London Metal Exchange (LME) not just for primary nickel but also the reduced availability is reflected in the purchasing prices of stainless steel scrap. In this respect, supply for January 2022 could pose quite some challenges for the market.

In recent weeks the US-dollar has shown itself on the strong side, which has mainly to do with the fact that the USA is expected to raise interest rates sooner than the Eurozone. The European Central Bank is caught up in its own expansionary monetary policy and debt financing for some ailing member states. The more than just potential inflation rate, now over 5%, is simply ignored. Even most bank economists have adopted this wishful rhetoric of the ECB that this inflation will only be of a temporary nature.

Yet, perhaps most have failed to realise that the European carbon price has almost doubled from about 50.00 Euro per tonne CO2 halfway through 2021 to 90.00 Euro per tonne. And this is by no means the end of the story due to the increasingly more restrictive climate policies of the EU (and Germany). But since energy and the corresponding commodities have a considerable weighting in the basket of goods for the price index, the protection from climate change will continue to ensure a consistent basic inflation in the future, and in the medium term in a way not seen before.

In this context it will be interesting to see how the newly appointed Foreign Minister Baerbock, almost as a test, will solve the latent conflict of interest with the EU’s largest partner, France, regarding the taxonomy soon to be adopted by the EU. The EU taxonomy is a tool to classify which economic activities are actually sustainable in regard to environmental goals. Whilst Germany has turned its back on nuclear energy and is relying on regenerative generating power and the import of nuclear and fossil energy, France still has a reliance of about 70% on nuclear power stations for its power supply. Oh là là.

Carbon storage could improve mining companies’ climate footprint
Six years ago, 195 countries, including the EU, agreed to the Paris Climate Agreement at the international climate conference. The global community set itself the goal of limiting global warming to well below two degrees Celsius in comparison to pre-industrial times. In Glasgow last November the global community recognised that the consequences of climate change would be less if a 1.5 degree target could be aimed for, rather than the increase of two degrees. For the first time it was agreed, in a joint declaration by the participants, that coal and other fossil fuels would be phased out. In the Paris Agreement of 2015 these had not yet been named as the main drivers of climate change. Prime Minister Boris Johnson said that although not all goals of the climate conference were met, the world is nevertheless heading in the right direction.

The metals and mining sector is a double-edged sword for climate change. On the one hand demand for raw materials is continually growing in order to push for the change to a sustainable economy. On the other hand mining itself is a major emitter of carbon dioxide. Between 4 and 7% of greenhouse gases caused by humans originates from mining, as a study made by the consulting firm McKinsey from the year 2020 shows.

Some mining companies are aware of this responsibility and consequently endeavour to reduce their carbon footprint, whether by electrification (hopefully with renewably produced electricity) or by changing to other renewable energies. In addition, the carbon capture and storage technology is seen as a ray of hope for companies to become not just carbon neutral, but even net carbon negative. Unfortunately this technology is still largely unproven. Yet there is hope, since some minerals can store carbon naturally. The challenge is to speed up this process considerably.

Some companies are already trying this on an industrial scale. The news portal Reuters recently reported on the Icelandic company Carbfix, a subsidiary of Reykjavik Energy, which, since 2014, has captured over 73,000 tons of carbon in the Icelandic basalt rocks. This means that the harmful greenhouse gases will stay in a stable form for thousands of years. The company has been able to reduce the time the basalt rock reacts with carbon dioxide from thousands of years in a natural process to less than two years, by dissolving as much carbon dioxide as possible in water. The water is then pumped into the basalt rock. In this process only water, carbon dioxide and basalt are needed and a cost of only 15 Euro per tonne is relatively inexpensive.

Carbfix has just announced a cooperation agreement with the mining company Rio Tinto, which operates an aluminium smelter on Iceland’s basaltic rocks. The emissions generated there can be directly captured in the rock and therefore the aluminium production can be more environmentally friendly. The Australian-British commodity group BHP is also testing the capture of carbon dioxide in its Western Australian site, Nickel West. Different to Carbfix, the carbon dioxide is not pumped underground for storage, but reacts on the surface.

On Mount Keith in Western Australian the slag heaps are rich in magnesium oxide, a carbon absorber. It has been observed that since 2014, 40.000 tons of carbon dioxide have been annually absorbed here. By crushing the rock the surface area of material could be exponentially increased which has sped up the mineral reactions. BHP is now carrying out further studies in order to determine how much more carbon can be captured.

In July, BHP signed a contract with Tesla to deliver nickel for battery production. If the figures of BHP are to be believed, then the company emits only half as much carbon as the latest top suppliers in Indonesia. Rio Tinto has already recognised that the aluminium market will be divided into low carbon and high carbon products. The bonus from the storage will significantly improve the carbon footprint. Both commodity giants are not, therefore, acting for pure altruistic reasons. Investments in green technology can bear fruit as soon as carbon dioxide is fairly priced via policies, such as the carbon border adjustment mechanism.

Climate protection made from scrap
As part of the “Green Deal”, the EU is considering the introduction of a Carbon Border Adjustment Mechanism (CBAM) on imports so that climate policy goals can be achieved without energy intensive industries having to transfer emissions abroad. In a typical ideal scenario, imported goods with a carbon footprint would be taxed and exported goods, sustainably produced in the EU, would be credited with the carbon adjustment.

In the Fraunhofer IMWS Study, published in 2019, the “scrap bonus” was scientifically proven in that the use of scrap as a commodity in steel production considerably reduces greenhouse emissions. At the same time, local environmental pollution is avoided and endless resources spared. In this way, the use of scrap contributes to climate protection decisively. The social benefits of every tonne of steel scrap, in comparison to steel production from coal and ores, are described as a “scrap bonus” and are valued monetarily in Euros.

In order for there to be a fair competition between the commodities in steel production, including those in the steel market, then market prices must reflect the social advantages and disadvantages of raw materials. The scrap bonus should, therefore, be internalised into the price system. The new study “Scrap bonus in concrete terms” by the Fraunhofer Center for International Management and Knowledge Economy IMW, therefore examines how far the European climate policy integrates the scrap bonus into its price mechanism and where gaps remain which stand in the way of fair competition. It proposes measures in order to close these gaps and create incentives for an efficient and climate friendly steel production.

Further details, as well as the report in full and an explanatory video can be found using the following link: https://www.bdsv.org/unser-service/publikationen/studie-schrottbonus-konkret/ (German). English language documents will follow shortly.

The transformation to a green steel industry costs approximately 278 billion US dollars
By 2030 the EU wants to have reduced, in a first step, its greenhouse gas emissions by 55 percent (“Fit for 55”) compared to the levels of 1990. Complete climate neutrality should be reached by 2050 at the latest. Because of its high energy consumption, the steel industry is the centre of attention here. In May of this year the Economics Minister Peter Altmaier announced that he would support the transformation of the steel industry with a 5 billion Euro package between 2022 and 2024. According to the now former minister, about 35 billion Euros are needed for the complete transformation in the steel industry.

In a study, released at the beginning of December by the private institute BloombergNEF (Bloomberg New Energy Finance) researchers have come to the conclusion that steel production could be transformed by 2050 in such a way that there are almost no carbon emissions. The transformation in the steel industry would, however, cost approximately 278 billion dollars. In order to reach climate neutrality five steps are necessary: An increase in the recycling input quota, green energy generation for electric arc furnaces, replacement of gas and coal with hydrogen in steel production or capturing the resultant emissions, the addition of hydrogen to existing plants and the upgrade or closure of all remaining coal-fired plants by 2050.

China will play a central role in the transformation, for it currently accounts for 57% of the global steel production capacity. The authors of the study propose that China first concentrates on increasing the scrap input quota and energy efficiency before making a transformation to new technologies. The estimated amount of 278 billion dollars for the creation of a clean steel industry is, compared to a transformation of the energy sector which is also required, still quite a moderate investment. For the latter transformation, researchers estimate investments of around 172 trillion dollars.

Cooperation agreement on production of aluminium rims from recycled materials
Even aluminium recycling can show that the possibilities of using secondary raw materials, as with the production of stainless steel from scrap, can reach levels in the high performance area. A few days ago, Raffmetal, a producer of aluminium alloys, and the wheel rim manufacturer Cromodora Wheels, announced a cooperation agreement. The companies aim to produce aluminium rims from a primary alloy which is based on recycled material. The production, compared to conventional aluminium rims, would lead to a drop in energy consumption of 95% and a reduction of more than 89% in carbon emissions.

And this concludes the final report for this year. Of course, it will continue in the coming year. We hope you have enjoyed reading the reports. We would be equally pleased to hear any feedback. We wish all our readers and their families a Merry Christmas and a Happy New Year. Stay healthy and we look forward to your continued interest.