Now or never: Powell should put things right

US-Dollar rules
The determining parameters of the nickel market in London have not really changed in the last few weeks. It remains a back and forth, or to express this better: an up and down. Above all, most influential is each new economic data that increasingly promise an improvement in the industrial economy of the USA and China. Further factors are the expectations of interest rate cuts in America (and Europe). In the USA, for example, the manufacturing industry is growing again for the first time in a year and a half. The official Chinese Purchasing Managers Index (PMI) climbed to 50.8 points in March (49.1 in February) and broke the 50 point mark, which separates growth from decline, thereby reaching its highest level since March 2023. Official announcements continue to indicate three interest rate cuts of 0.25 each by the American Federal Reserve.

Against a background of robust economic data and a slower drop in inflation, there is still talk amongst internal and external cynics of the central bank, who expect and think it best that interest rate cuts can only take place later in the year. Then the US-dollar rate firms up and the yields on fixed-interest rate securities in the US currency increase. Mostly however, these phases are short-lived, which clearly shows that the markets find themselves in a reorientation stage.

Leaving out possible economic shocks, such as the example of the container ship collision with a bridge in Baltimore, hope and doubt are currently battling one another about the future of economic development. In other words: the position of the economy and also the expectations are very inconsistent, no matter which company, which country and which sector are viewed. In this respect, we stand by our expectations that interest rates will fall sooner rather than later. It should be in the overwhelming interest of central banks and governments for the spinning coin to fall on the right side and therefore enable a “soft landing” instead of recessionary tendencies being created. Don’t Mr. Powell and his colleagues think along similar lines?

At the moment the LME nickel 3 months future is quoted again at USD 17,600.00/mt, after losing some ground since mid March when the high was still around USD 18,500.00/mt. Prices fell at times to USD 16,600.00/mt. Almost in line with this, the US-dollar against the Euro firmed up from over 1.0950 USD/EUR to 1.0740 USD/EUR. This shows the way the wind is blowing at the moment.

Is there competition for the LME after all?
In this situation, the news agency Reuters has reported that the Shanghai Futures Exchange (ShFE) is examining an internationalisation of its nickel future that is traded there. So far trading of these futures has only been allowed within China and also only by market participants domiciled there. According to information from Reuters, this could change in that corresponding futures would be allowed for international use. This could, basically, be a game changer in pricing, but as the LME and its parent company Hong Kong Exchange (HKEX) are already more or less in Chinese hands, where does the advantage come from? And whether the confidence in a pure Chinese exchange, above all that of market participants’ outside of China, should be greater than in the LME is more than doubtful, given all the discussion in the West about decoupling and de-risking.

However, China is one of the largest nickel consumers and controls in Indonesia and China also a considerable share of nickel mines and refineries, thus production. On the other hand, the ShFE, during and after the fiasco on the LME in March 2022 did not perform much better and is basically confronted with the same challenges of limited exchange liquidity due to the overall market size. This fact speaks more for a consolidation rather than a fragmentation. Perhaps it is just about a reaction of the ShFE to the increased Asian and Chinese activities that the LME is currently planning and undertaking. This will be seen and closely watched.

Stainless steel circular economy in Thailand
An increase in recycling of stainless steel can provide a noticeable contribution to climate protection not just in Thailand but also worldwide. This is the conclusion of a recent joint study by renowned Thai and German scientists commissioned by Oryx Stainless (Thailand) Co. Ltd. to examine the social benefits of stainless steel recycling in Thailand. The Fraunhofer Centre for International Management and Knowledge Economy IMW in Leipzig planned and coordinated the study with the support of the German Embassy. For every tonne of stainless steel scrap used in the production of new stainless steel, a saving of 6.71 tonnes CO₂ is saved in comparison to using primary raw materials.

The scientific analysis of the Fraunhofer UMSICHT came to this conclusion using the example of the recycling process of Oryx Stainless in Thailand. Oryx Stainless is one of the world’s leading suppliers of recycled stainless steel, with five sites in Asia and Europe. Based on the stainless steel scrap processed by Oryx Stainless in Thailand in the reference year of the study (2021), the scientists calculated 556,000 tonnes of CO₂ savings. This corresponds approximately to the annual carbon footprint of the inhabitants of the Muang Chachoengsao district, close to the Thai site of Oryx Stainless, or 1.45 percent of total greenhouse emissions from all industrial processes in the country. The potential for Thailand and the climate becomes clear when it is seen that within the whole of the Oryx Stainless Group in the year referred to there was a carbon saving of almost 3.6 million tonnes.

The fight against climate change is of special meaning for Thailand, as the country already suffers greatly from the effects of global warming. In the global long-term climate risk index which covers the years 2000 to 2019, Thailand is in 9^th place. Thailand is endangered to a great extent by natural occurrences such as heat waves, drought, floods, cyclones and storm surges. Floods in particular present the greatest threat for Thailand due to frequency and damage. The country is already one of the ten countries worldwide most hit by floods.

In terms of the economic costs caused by climate change, the amount of stainless steel scrap that Oryx Stainless Thailand Co., Ltd. returned to the production cycle saved around 1.9 billion Thai Baht, equivalent to more than 50 million US dollars, according to calculations by the Thai and German scientists. This corresponds to the average annual income of around 7,000 Thai people.

The calculation, based on the “scrap bonus” indicator developed by the Fraunhofer Centre for International Management and Knowledge Economy IMW, was individually adapted to Thai conditions by the international research team for the study. The indicator is calculated in two steps. In the first step, the environmental impact that is avoided by using one tonne of stainless steel scrap in steel production is quantified. In the second step, various economic estimates and price references from emissions trading schemes are used to convert the environmental impact which has been avoided into Thai Baht. In other words, a price is assigned to the (avoided) environmental impact.

Sirichai Tempoomsuk/CFO, Oryx Stainless (Thailand), Co., Ltd said: “This study shows that the intelligent use of recycling raw materials, such as stainless steel scrap and its usage in the manufacture of new products can provide a noticeable contribution in the fight against climate change. Scrap from stainless steel is especially a valuable secondary commodity, since it is very good to recycle. Stainless steel can be recycled without loss in quality. Worldwide 95% of stainless steel is recycled at the end of its life span. 70% is recycled as stainless steel. Scrap currently accounts for around 48% of raw materials for the global stainless steel production. In Europe, the leading stainless steel producers are going to the limits of technical possibilities and use up to 95% of recycling raw materials in the production of new stainless steel”.

Create favourable conditions for recycling and therefore for climate protection
With a stainless steel production of 7.79 million tonnes in 2023, Asia (without China and South Korea) is already an important player. It is expected that the South East Asian steel industry, including the stainless steel sector, will considerably increase production capacities in the coming years, whereby countries such as Malaysia and Indonesia will establish new capacities in the millions. In 2022 Thailand produced around 366,000 tonnes of stainless steel and is also the second biggest consumer of stainless steel in South East Asia.

Christian Klöppelt, Research Fellow, Fraunhofer IMW, as speaker of the research consortium, commented: “The growth perspective in South East Asia, and therefore also Thailand, underlines the necessity of an intelligent interaction with our resources in view of the progressing climate change caused by greenhouse gas emissions. Here politics is needed, also in Thailand. Intelligent recycling creates not just economic but also ecological advantages for the Thai society. In order to fully exploit these advantages, politicians should ensure equal competition for raw materials and create favourable framework conditions for the recycling industry.”

Specifically, the international researchers suggest the examination of the pricing of CO₂ emissions in Thailand. The suggestion is also made to extend the Thai Bio-Circular-Green (BCG) Economy Model to include metal scrap and the recommendation is made to create favourable conditions for the recycling industry. Finally an appeal is made to government to support research, development and education initiatives in these areas. The study was presented to the professional public on Wednesday, the 27^th March 2024 in the Hyatt Regency Bangkok Sukhumvit, Thailand.

LME without “green” futures – will all “green” producers soon die out?
As part of its sustainability strategy the LME is focussing on transparency of ESG (Environment, Social and Governance) data instead of specific “green” futures. In order to extend the product range on the LME nickel market, the LME last year listed four new producers, or rather their standardised products, whereby more brands are in the pipeline to be checked. This measure has the aim of strengthening the volume of trade and liquidity for the LME contract. However, the LME believes that the market for “green” nickel is not big enough at the moment to support an intensive and broad trade with its own green futures contract. In addition, market participants have expressed concerns regarding the definition of “green” nickel and the sufficient liquidity of a specific contract for this segment.

For these reasons, in the future certain nickel product variants with different ESG characteristics could be offered via index prices on digital spot trading platforms. The LME is working towards this, for example together with Metalshub, which has been operating a price and procurement solution for physical market participants since 2016. With regard to pricing, taking ESG criteria into account, the Consultancy Benchmark Mineral Intelligence could have a greater influence in the future. It wants to publish transaction prices for nickel and nickel sulphate every two weeks. And this would be from producers who fulfil compliance with an ESG catalogue with 79 different ESG criteria.

It does have to be asked whether the sustainability strategy of the LME is sufficient enough. Above all when first market participants call on the industry to seek alternative trading possibilities because of a lack of green futures (in this case, namely the Australian nickel company Wyloo, which may, however, be following its own agenda). Nickel producers, who produce with low emissions, could, therefore, not yet expect an explicit green premium. Hope does, however, remain that with a greater dynamic there will be more “green” trading possibilities. And the manufacturing industry and end consumers are exerting pressure for more sustainability. If, however, the global economy is not able to create “green” supply chains in the short-term, which also goes hand in hand with customers being prepared to pay a higher price for sustainable raw materials, then the future of “green” primary raw material producers certainly does not look very certain.

No second-hand market for electric vehicles
At the beginning of the year, the German news programme, Tagesschau, quoted a used car salesperson as saying “demand is non-existent”. It appears that (in Germany) there is no market for second-hand electric vehicles. But, according to other reports, this is not just a German problem, as Bloomberg also writes that there is basically no electric vehicle market in Europe, and quotes the COO (Chief Operating Officer) of Toyota Europe in this. Even an export abroad as a last resort is no solution – combustion vehicles, even with high mileages, are still being exported in large numbers to Africa, for example  – the necessary infrastructure is missing. One look at China shows that the non-existence of a second-hand market there leads to electric car and electric mobility “graveyards”.

Reasons for the lack in demand are, amongst others, the technological uncertainty, and concerns about the condition of electric car batteries. In summary this leads to significant two figure price drops for used cars. This then also has other effects: it means that it becomes less attractive for the big leasing companies and fleet providers to bring their used vehicles back into the market. That is why Hertz and recently also Sixt announced a reduction in their electric car fleet.

It is not running smoothly with the EV mobility transition. Perhaps there is also a need for new business models or ideas: at least in regard to batteries a use in their “second life” as electricity storage or as a recycled product would be more preferable to consigning the resources located within to the “graveyard”. This would also be in tune with the Circular Economy Action Plan, announced by the EU in March 2020, which includes the core idea of the “3Rs”: R educe, R e-use and R ecycle (return to the cycle as a secondary raw material).