5

People are realising lockdown measures come at an enormous economic cost. A (belated) explanation of decision policy by government is, therefore, absolutely necessary.

5

Positive data from China. Recovery there could be V-shaped. Europe has also levelled out. America and Africa still not reached the peak. However, the pandemic has still not been conquered.

5

Individuals and companies urgently need a perspective. Caution and Puritanism are not compatible with a quick recovery. Other countries are welcome to inject Germany with their optimism.

5

Prospects for steel industry mixed, but not without hope. China makes progress in this sector. Surprisingly car sales are rising there. High frequency data shows light easing.

Collateral damage becoming more apparent
There seems to be quite a few politicians and decision makers surprised by the economic collateral damage already seen and which is still threatening, caused by the more or less hard lockdown measures to contain the Covid-19 pandemic. It would almost seem as if the pause button had been pressed and then after a time, the play button pressed again. But unfortunately it is not so simple, as, for example, how can a city like New York be woken up again, when before Covid-19 it had never slept. At least the surprise may not have been so great if, along with virologist reports, a little more could have been explained in other areas, such as the economic reasoning behind some decision making.

This does not appear to have happened much, at least looking at media political reports as well as the non-existing debates in German Parliament. Now though, public opinion is becoming angered and is demanding a retrospective explanation, as the consequences are now either directly affecting people, or at least affecting those around them. When one’s own wallet is hit, all altruistic values are forgotten.

In this point, a statement made by the Development Minister Gerd Müller, (CSU) should be mentioned. He declared that the involvement of the EU to combat Covid-19 in developing and emerging nations is shameful. Up to now, not one Euro in additional help has been given to these countries. Society has shown itself to be totally two-faced. This is apparently about the protection of the weak and sick from Covid-19, but in truth it is not about protecting people’s lives but really about only protecting our own lives and those nearest and dearest to us.

Economic development will shape future debates
It’s not really such a bold forecast to suggest that, should there not be a quick economic recovery over the summer, then calls will become louder demanding, at the very least, a retrospective examination and justification of the decisions which had been taken. The press will be behind this first and foremost, even though it did not have much of a multidisciplinary approach itself in all of this. It will probably even rapidly overtake some of the conspiracy theories.

It is interesting that, in the meantime, there are apparently both good and bad conspiracy theories. As well as the already well-known tin foil hats, Sasha Lobo, columnist of the weekly magazine “Der Spiegel” wrote an article about Donald Trump and his planned coup should he lose the election in the USA this autumn. He based his (conspiracy) theory on objective facts which do not appear to be very far-fetched. In this case, this fantasy does almost seem to have certain legitimacy and is an expression of journalistic freedom.

It should also be taken into consideration that nearly all conspiracy theories do have a certain amount of reality about them, which provides them with a small but certain amount of belief. This is proof enough for followers; all others should understand this to be an expression of diversity and plurality. The winner at the end is either the facts or the deepest pockets.

German virtues not necessarily needed
Everybody is hoping now for a V-shaped recovery. This means, first a massive slump, which economic figures are already clearly showing for April and May, followed by an equally massive recovery. Everything all just in a matter of months, at the most, quarters. If just Germany alone is taken, however, some doubts have to be raised, for the Germans, and it is perfectly fine to generalise in this case, belong to the most cautious and safety conscious groups in Europe, possibly in the world.

Not without reason are the most laws and regulations found here, and also the most numbers of insurance policies and the biggest saving deposits. The latter gives Germany a considerable potential, both on a private and state level, to overcome the economic problems. But this can all come to nothing if spending is not made on consumer goods and investment. The lowering of the value added tax rate almost seems an act of desperation. Indeed, it lays bare the considerable fears, if not to say panic, of the government.

To state it clearly: German consumers and German business have a tight grip on their purses since there are no clear prospects. Unfortunately, this is poison to a quick recovery. But enough of the bad thoughts, for there is still the rest of the world to consider, thankfully. And many countries and regions have a different perspective. The joys and pleasure of life are felt much stronger there and in other places there is such a strong hunger to improve one’s well-being. And this can only work well with economic activity.

Also there, the dead are mourned and blame is sought, but at the same time people are once more looking to the future. Asia, and especially China, is already in clear recovery, whilst in Europe recovery is only just tentatively beginning. America, with also Africa, is still in the midst of the pandemic. Perhaps winter in the southern hemisphere plays an additional role too there. Through the high export dependency of Germany and Europe, one should be able to profit even here from the earlier recovery and from the bigger vitality and optimism seen elsewhere. Let us also become optimists and turn from being savers to spenders. Then the situation will look better and politicians can once more claim a success story for themselves.

Relaxations help recovery on the LME
Nickel prices on the London Metal Exchange (LME) have reflected all which has just been said. After the low, mid to end March, of around USD 10,900.00/mt, recovery in prices has continued in the last few weeks. Of course, as is also normal on stock markets, it is not a linear development, but is at times pushed by individual news items and exceptional events. On the 8th and 9th of June prices reached an interim high around USD 13,100.00/mt, but then followed by a correction.

Parallel to the massive stock market fall on Wall Street in the USA, after very serious talk by the US Fed, the price for the 3 months future fell to UDS 12,600.00/mt. But generally now traders in the nickel market are more optimistic, and of the view that with further economic recovery the demand for nickel will also increase.

Covid-19 could increase scrap consumption in China
Fastmarkets (formerly Metal Bulletin) reports that Covid-19 could make China turn more rapidly to scrap based steel production in electric arc furnaces (EAF), citing voices in the market. The electrically driven EAFs would be much more flexible and cheaper than blast furnaces, which today make up for most of steel production in China. Exactly when it’s a matter of shutting down and then restarting smelting plants EAFs are the chosen technology, as well as in stainless steel production outside of China. The head of Metals and Mining Research with Fastmarkets, Alistair Ramsay, reckons that the costs of blast furnaces are up to three times higher.

In addition, the supply chain interruption of iron ore could have an effect on Chinese steel works. In blast furnaces there are technical limitations, whereas electric arc furnaces are optimised especially for scrap usage. According to recent data of the China Metallurgical Information & Standardization Institute (CMISI), in 2019 China had an EAF capacity for 168 million tons steel annually. With about 60% capacity utilisation, according to CMISI, about 100 million tons steel were produced.

The western observer could ask the question here, whether indeed any money can be earned with such a load rate. But even if this is so, a quick change in structure is not to be expected, for EAFs so far only make up a tenth of all capacity in China. Along with its own resources, the expected scrap demand could of course be met by increasing scrap imports. In this area, since 2017, there have been a number of changes.

From metal waste to recycling materials
In 2017 China announced an import ban on plastic waste and twenty other recycling materials, which became enforced in 2018. The government in Beijing had set a goal of bringing imports of waste to zero by the end of 2020. An announcement was made this year that metal scrap, which meets new standards, is to be classified as a commodity and no longer falls under waste regulations. For certain scraps, for example copper and lead, this ruling should already come into validation in July.

It is now clear, though, that the change will happen later, as the office responsible for classification (e.g. purity standard) has not announced any details. Some parts of the world still do not recognise that scrap is a valuable commodity. However, the ambitions of China do clearly show that there is a definite difference between waste and recyclable scrap as a vital substitute for primary commodities.

Prospects of the steel economy
The Chinese stainless steel economy is showing itself to be resilient, according to an analysis published in May 2020 by the commodity experts of Macquarie. The experts give hope for a V-shaped recovery in domestic consumption. At the beginning of June the confirmation came that nickel demand – calculated as the sum of domestic production added to imports less exports – for the period between January to April had actually risen by 6% over the same period of the previous year. However, in the same time frame the reduction in stainless steel production of around 8% is close to the “real” consumption figure, which is estimated to be minus 6%.

The conclusion of Macquarie is that the only possible explanation for the seeming discrepancy between apparent and actual nickel demand can only be the change in warehouse stocks. Yet Chinese stocks are not systematically recorded and published. The usual discounts on LME prices for nickel pig iron and ferronickel in China have also decreased in the same period which basically speaks for a stronger nickel demand.

For Europe and the USA, Macquarie reckons with a significant reduction in production of stainless steel for the second quarter. However, overall, the analyst team put the negative outlook into perspective. For the whole of 2020 a reduction of 5% compared to 2019 is expected for global stainless steel production. Other estimates show a reduction of 8%.

To attain a more exact estimate amongst the many uncertain factors, it is sometimes a help to look at some other bigger details. The sale of excavators gives some hope. In April 2020, excavator sales of the biggest Chinese dealers rose by 60% compared to the same period of the year before. This is insofar significant since in the past, demand for excavators has proven to be a good early indicator for steel demand.

New car sales in Europe, however, fell in April by 76%. In China, the biggest car market of the world, the position is more eased. Vehicle sales in May compared to the previous year had risen by about 11.7% in China. According to China Association of Automobile Manufacturers (CAAM), this is the first rise in sales for approximately two years. New car sales have almost reached previous year’s levels and show a significant recovery after the sales downturn at the height of the pandemic.

The sales increase has been attributed to customers where it had been assumed they had put car purchases on hold. As well as this there has been a sharp increase in first buyers who are trying to protect themselves from the coronavirus, a trend which was also seen in the SARS outbreak of 2003.

High frequency data complements the picture
For some weeks Apple has been publishing movement data on its website in order to support measures working to contain Covid-19 and its consequences. The anonymous data of mobile phone users is regularly updated and compared. The movement data shows that the car is a winner in the corona crisis. Although for a time car movements were reduced by half, since then they have recovered so much that the car is used more now than even before the crisis. Demand for public transport, however, has been greatly reduced and has not returned to levels of pre-crisis.

The challenges facing airline operators can be followed daily in the media. At the start of June, the internet website
Flightradar24 wrote on its blog that the number of flights followed in May 2020 had fallen by 52% compared to May 2019. In April the total number of flights was 62% lower than in 2019. The improvement compared to the previous month is mainly due to non-commercial flight activity. Commercial flights in May increased only slightly and were 70.8% below that of 2019, compared to 73.7% in April.

Chrome price increases significantly
In April 2020, prices for chrome ore rose by 50% since the historic lows after mines in South Africa were forced to close because of the coronavirus. In April South African exports of chrome ore and ferrochrome fell by more than 70% compared to the previous year. Although for the rest of the year a steady recovery is expected, South African ore production, which accounts for 60% of global supply, will probably fall by at least 15% compared to the previous year. Experts estimate that global production of chrome ore will fall by around 11.4% and that of ferrochrome by about 8.5%. Against this, expected consumption is only expected to fall by 5.1%. This would be the first deficit in supply since 2016. It has yet to be seen whether this might lead to higher prices for ferrochrome in the medium term as there are still considerable stocks held in warehouses.

LME (London Metal Exchange)

LME Official Close (3 month)
 June 15, 2020
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
12,575.00
USD/mt
5,673.50
USD/mt
1,570.50
USD/mt
 
LME stocks in mt
  May 14, 2020 June 15, 2020 Delta in mt Delta in %
Nickel (Ni) 233,604 232,878 – 726 – 0.31%
Copper (Cu) 282,675 247,000 – 35,675 – 12.62%
Aluminium (Al) 1,361,575 1,577,000 + 215,425 + 15.82%

Oryx Commodity News

Oryx Commodity News informs about current, industry-relevant topics