Even in the Land of the Rising Sun not everything always on the rise. Here, like elsewhere, politicians prefer to put off the often painful solutions to problems. This does not only pertain to democracies.

Bottoming out continues. The US-dollar, due to the high interest rates, is driving the markets. This is weakening the other currencies. While imports into the USA are cheaper, elsewhere prices are rising.

What does artificial intelligence mean? Is a super battery in sight? Also here, it’s performance versus price. Metals such as lithium and nickel are in short supply. Can the “super power” of Indonesia help?

Decarbonisation is a priority nearly everywhere. Not only mature economies are active. There are voluntary and state systems for trade and behavioural control of greenhouse emissions.

Which locomotive has the power?
South East Asia is situated in a central position, with East Asia and Oceania on the one side and India on the other. A platform in the best economic sense could not be better located geo-strategically. And the current dynamism of the region and the attention which its countries have been receiving from the rest of the world could not come at a better time, as the new growth locomotive China is stuttering and the old locomotive of the USA has seen far better times. Certainly there are some companies in South East Asia which have also been hit by economic weaknesses if they have been trading with Chinese companies, or if Chinese real estate developers have begun projects in other countries. But then again, there has been a huge shift of business activity from China to South East Asia, which has not only been to reduce dependency on supply chains, and this has probably even over compensated for the dampening of China’s influence.

But all is not finished in China even if the Chinese have suddenly discovered how to save. For the initial timid measures which were started to support the crisis hit real estate sector – which has by no means only applied to the Land of the Rising Sun – have been expanded with clever ulterior motives. For example, the purchase of apartments by households, which had previously not owned any property, has been especially encouraged. In Germany, however, the high acquisition costs along with the land transfer taxes, legal and land registry fees are well known, and, combined with the more than quadrupled interest rates, means that for the most German households, property has become unaffordable. On top of all this, there is also the threat of high costs for energy efficient renovation or initial installation.

And the measures in China seem also to be slowly having an impact, as early indicators, such as, for example, the development of consumer prices and the statistics for imports and exports, are stabilising. Even the copper price on the London Metal Exchange (LME) was able to profit from this. The US-dollar has strengthened considerably against many currencies for some time now, including against the Yuan, the Yen and the Euro, which is mainly due to the comparatively high interest rates in the dollar zone. Imports, also those of raw materials into the respective countries, have therefore, become more expensive. It could even be that now the Japanese central bank could also abandon its zero interest rate policy, in effect since 1999, and raise interest rates.

However, it is now being said that China, or to be more precise, the Chinese government may have deep pockets, but this does not apply in every aspect and is also not unrestricted. It is becoming more and more evident, that full employment and an increase in living standards, as well as profit, are very important economic goals of a society, but that without a sustained profitability in the production of goods and services, this cannot function indefinitely. This recognition seems, however, to be lost on the present German government if one sees which visions are being pursued without solid financing which stifles companies and the population in the medium term.

The transferral of investments away from Germany is, therefore, not a surprising, but a logical consequence. The fact, however, that after such a long time, the increasing interest rates (at last) have given meaning again to the value of money, is very positive news. For this forces decision makers all over the world to think about the financing of expenditures and investments. And this also applies to the economy in China, which has probably also been relying a little too much on credit.

In this respect it is very pleasing that the demand for sustainable raw materials, such as stainless steel scrap, is strong and there is almost a certain tendency of being able to secure raw materials at attractive prices. But opportunists are always faced with opportunism so that this plan is not so simple and can pass by unnoticed. Let us wait and see. Nickel is priced on the LME at the moment at around USD 20,000.00/mt but without much momentum of its own, and, like other industrial metals, is driven by the ups and downs of the US-dollar and the changeable ad-hoc news from China.

Always these superlatives
For some time now, hardly a week goes by without seeing, hearing or reading new praise about artificial intelligence (AI). There certainly seems to be a lot of hype made, for example, about the download numbers of the chatbot ChatGPT. Yet perhaps in all this euphoria, innovative power and faith in the future there should be a little more realism. Already in 1996, for example, the chess computer, Deep Blue, was able to beat the ruling chess champion at the time, Garri Kasparov. This is already a form of artificial intelligence also, and was not even the first.

With the invention of the computer, the path of information technology, automisation and analysis and processing of larger and larger amount of data which then followed will continue unabated, and this will not change. Yet caution has to be taken, for the praise is not always about technically correct classifications. Also substantial interest in creating myths around a certain software or company, in order to bring it at high prices to as many users and investors as possible plays a role at the moment.

Quite a few experts stick to the unwritten law of “follow the money”. A none too small part of the US-American economic development of the last few decades (key word: bubble economy) has been based on this type of bubble, even though, for good reason, this has not been prominently discussed. And if products are then given such flattering descriptions using words like intelligence from totally other scientific fields such as biology, biochemistry or medicine, then alarm bells should start ringing.

For example, at one time German Railways (Deutsche Bahn) announced the introduction of an artificial DNA as a protection against theft and vandalism of its operating facilities. By taking a closer look, this was an invisible varnish, which left an individual marking only seen under a fluorescent light. In comparison to the complexity and mechanism of human and animal DNA, there are considerable differences to be made.

Some investment advisors, therefore, recommend, that even when investors wish to invest in the AI sector without excessive risk and all-in mentality, they should possibly better concentrate on the corresponding hardware or periphery which enables the software processes, since the actual long-term success potential of certain software products and their manufacturers are still difficult to fathom out.

What is certain is that the (working) world will continue to change and even more quickly, sometimes too quickly for many people. But we are on this path and will not leave it anymore. Examples of the new economy/dot.com, block chain and crypto currencies and more recently, cybercrime show that it is not a linear development. Ultimately, the “meaningful” and sustainable progress cannot be stopped.

Is the “super battery” in sight?
Technological progress also cannot be stopped in the development of new electric vehicles, and above all in new types of batteries. In this respect, solid-state batteries are seen as one of the promising future-orientated technologies. Just recently Toyota, the biggest car manufacturer globally, let it be known that it has made a breakthrough in this area: the battery type developed should give an electric vehicle a range of up to 1,200 km, four times more than the present model, and it is able to be charged within only 10 minutes. Production of this type of battery is expected to start in 2027/2028.

Unlike the currently predominant lithium-ion battery, the solid-state battery does not need a fluid ion conducting electrolyte. The electrolyte fluid usually consists of an organic solution and a conducting salt, typically lithium based. The solvents used, however, are flammable which, in the case of a damaged or overcharged battery, can lead to a fire starting or even to an explosion.

In a solid-state battery, the electrolyte is, as the name says in a solid state, and can be manufactured from a number of different materials even including ceramic materials. But what are the other components of this type of battery? As cathode material, polycrystalline lithium-nickel-manganese-cobalt oxide (NMC) can still come into the equation, just as the cheaper lithium-iron-phosphate (LFP) can. As anode material, silicon or even lithium can be used to replace graphite, whereby the energy density (and therefore the range) would be greatly improved.

There is then a greater demand for lithium: estimations suggest that these solid-state, or “super” batteries, depending on their structure, could require 40% to 100% more lithium. This is also reflected in similar corresponding forecasts: in its “Critical Minerals Market Review” the International Energy Agency has calculated that demand for lithium will be 3.5 times bigger between 2022 and 2030 and will increase by 17% annually to 450,000 tonnes. In comparison to the nickel growth discussed in our last edition, that of lithium will be therefore much bigger.

Yet it does not only have to always be about bigger, quicker, further: technological development is also looking for cheaper, more affordable solutions. In this respect, sodium ion and also lithium-iron-phosphate types can be named. But if it is about increasing performance over and above solid state batteries, then lithium-sulphur batteries will probably come into consideration.

Indonesia: the nickel “Superpower”
Nickel production in Indonesia is growing and growing and is therefore playing an increasing larger role in the global context: more than 50% of global (primary) nickel is now sourced from this Asian country in the meantime, according to estimates of the Macquarie Bank analysts. In the first half of the year, Indonesia exported about 860 thousand tonnes of nickel, contained in various product forms, in intermediate products such as nickel matte, or a mixed hydrogen precipitate (MHP), in ferro-alloys, ferro-nickel and nickel pig iron (NPI) and in the form of austenitic and, therefore, nickel containing stainless steel. Global nickel production in the first half year was about 1.7 million tonnes.

What is noticeable is that ores are no longer named in the export statistics. Export deliveries of ores and concentrates have been banned since 2020. A good decade previously Indonesia was in danger of becoming a pure mine operator and ore supplier for China, but the first export ban in 2014 put an end to this. The long-term strategy of the Indonesian government of promoting investments in downstream industries and localising value creation appear to have been successful so far: in the meantime, according to analysts, the whole industrial cluster of nickel containing products, which includes stainless steel production, has over a 10% share of all Indonesia exports together.

Meanwhile the world’s largest reserves of onshore nickel deposits are to be found in Indonesia. Recently data published by the government show 55 million tonnes of known and mineable deposits. The total reserves are even estimated to be over 170 million tonnes. Despite this being a seemingly high number, the government is thinking more long term: for example, a moratorium for new investments in nickel pig iron (NPI) plants is being discussed. Also, in this year, there have been investigations into corruption and violations in the awarding of new mining licences. The latter led to a disruption in the ore supply, which, not surprisingly due to the size of the nickel segment in Indonesia, in turn led to higher prices in August for ore and nickel pig iron. The analysts of Macquarie Bank in the meantime consider the nickel industry in Indonesia as “too big to fail”. On the one hand, quite admirable, on the other, however, also quite scary.

Decarbonisation is a global issue
In addition to the superlatives, the long-term aspect of decarbonisation should not be ignored. The system for controlling (and reducing) emissions in the European Union (EU) has been in the European Emissions Trading System “EU ETS” since 2005. Since then other countries, including China, Japan, South Korea and also New Zealand, Switzerland, Canada and the USA have introduced similar systems or are working on introducing them.
The Emission Trading System of the EU is a so-called “cap and trade” system. This means that the EU Commission annually determines an upper limit for greenhouse gas emissions and issues a set number of certificates, which plant operators either obtain free of charge or they must purchase them. The regulating part of the EU is, therefore, in reducing the upper limit, the cap, and limiting the distribution of free certificates.

In addition to these state systems, over the last few years, a “Voluntary Carbon Market” (VCM) has evolved. On various platforms emission certificates can be traded. For example, in March of this year, the Bursa Malaysia Carbon Exchange began trading certificates. Malaysia plans to start a “Voluntary Market” and then, in time, to introduce a state regulated market the along the line of the “cap and trade” system.

Decarbonisation is therefore not just an issue for mature economies, but also, taking the example of Malaysia, a focus of legislatures and governments nearly everywhere.

LME (London Metal Exchange)

LME Official Close (3 month)
September 13, 2023
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon. Ask
LME stocks in mt
  August 17, 2023 September 13, 2023 Delta in mt Delta in %
Nickel (Ni) 37,110 38,742 + 1,632 + 4.40%
Copper (Cu) 91,400 143,400 + 52,000 + 56.89%
Aluminium (Al) 487,100 491,300 + 4,200 + 0.86%

Oryx Commodity News

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