5

Nickel chart is technically forming a Death Cross. Seemingly somewhat valid. This is, however, also true for Golden Cross and Hindenburg Omen. And fundamental data does also exist.

5

Trade war rhetoric continues. But Trump is not the only one influencing prices. Arguments for and against the nickel price are still bounding about. For example a dampening of order receipts.

5

Worldsteel expects a continuing growth of scrap usage. Availability and technical infrastructure are the main reasons. Climate control obviously also plays a part. Emissions trade is beginning to take effect.

5

The Philippines are limiting land development of mines. Nickel ore production is also affected. Environmental issues are in the foreground. Renaturation and buffer zones as added instruments.

On Tuesday, 12th September 2018, Bloomberg news agency reported, via its various channels, that nickel, on the London Metal Exchange (LME), had formed a Death Cross, which is to be interpreted that (further) price drops are to be expected. But what does this warlike expression of Death Cross actually mean? It represents a technical pattern in a chart analysis which is supposed to herald a weak market phase. The gliding 50 day average crosses the gliding 200 day average in a downwards movement. This has happened with nickel only five times in the last five years, the last being at the end of March in 2017. Now a certain relevance could be given to this, but it can also be said that since March 2017 up to today, prices have moved considerably either upwards or downwards without more Death Crosses being present.

But what cannot be ignored is that the more market traders believe in these formations, and the more automated trading engines work along these patterns, the higher the probability is that prices in consequence will also develop in the expected direction. It is also correct that the 200 day average, as a relatively slow developing average, represents a medium term trend, whereas the 50 day average is more short term. And when the short term crosses the more long term trend on the downside, it is intuitively clear what this means, at least in the short term, for the future development of the long term average: the possibility of a turn to the downside. So not really surprising that with such a nickel price development seen over the last few months, the 10 and 30 day averages have already crossed the 200 day average on the downside and the 100 day average has already turned south bound.

Looking at it from a fundamental point of view, a scepticism about price movements is certainly connected to the increasing escalation of trade wars of the USA with almost “any country”. The potential consequence of a halted growth in world trade would have a dampening effect on demand for commodities.

But is the influence of US President Trump being somewhat overestimated here, for the markets may perhaps see future developments somewhat less rosy for other reasons. Firstly order receipts in the industry are at times wavering a little, and for the rest, cautious voices are being heard on the macro economical side which prophesise an end to the many years of recovery after the financial crisis.

The present decline in nickel stocks and the medium term fantasy about batteries in electro mobility, cannot be sufficiently set off against this in order to justify a sturdy upwards trend. The enormous backlog of demand from emerging markets, and the possibility of a settlement in the trade wars cannot, however, be easily dismissed either, so that even after just a few “suitable” reports, the mood can very quickly swing around again. This would, of course, not suit the Death Cross. Any sanctions against the big Russian nickel producer, Norilsk Nickel, could also have a huge and positive influence on prices. But at present, the climate, as in other markets, is tending to the bearish side.

At the moment, nickel, after a low of USD 12,085.00/mt, has recovered well to trade around USD 12,600.00/mt. This may have been helped by the USA now being prepared to talk once more with China after all. At the USD 12,200.00/mt level though, there is an important support line. A substantial break of this on the downside would be rather detrimental for the future development of the nickel price. But, so as to not end this paragraph on a gloomy tone, it should be pointed out that there is not just a Death Cross, but also its more friendlier pendant: the Golden Cross. A Golden Cross is when the 50 day average crosses the 200 day average on the upside. The technical analyst then reckons on rising prices.

However, one has to remain sceptical when these chart formations are sold as absolute truths, for, in not too few cases, markets have developed in totally differing directions. And these chart formations are in abundance. An especially fine, but at the same time very dramatic sounding formation (in this author’s opinion – who, during his career has come into contact with many crosses, and not just in churches) is the Hindenburg Omen. Its definition is complicated and involves four criteria. The best is, however, that, according to empirical observations, explicit price falls have only ever followed this Omen in about a quarter of all cases. So it is best to take developments simply as they appear.

The World Steel Association (Worldsteel) has let it be known via its Head of Raw Materials, Dr. Baris Bekir Ciftci, that scrap will increasingly replace natural resources as an important commodity source for steel production. For one thing, this is because of the growing availability of scrap, and also structural changes in steel producing countries, but also because electric arc furnaces are optimised for scrap usage, moving away from the blast furnace infrastructure. But it will be quite a while before steel is solely produced by the sustainable use of scrap, although this is technically possible. This would presuppose a saturation in the markets for steel and stainless steel.

However, as long as steel production and steel demand continue to grow – and the emerging markets are an important factor here – the amount of scrap now available is not enough to cover the total demand for raw materials. Other commodities still have to relied upon with stainless steel, such as nickel, chrome and iron, in the form of primary raw materials which still have to added.

So the primary commodity giants can still sit back and relax at the moment. At the same time, the good news is that these commodity units which are added do not go to waste, as steel and stainless steel can be completely recycled, without any quality loss. In the form of scrap they still remain as a commodity and part of steel production in the future.

Scrap is an economical and ecological superior material which Worldsteel has also acknowledged. The possible savings in energy and greenhouse gases speak strongly for it, and negative external effects from primary commodity production are being internalised in more and more countries and economic regions, as part of unilateral and multilateral policies and regulations. An article in the German newspaper “Die Welt” with the title “Emissions trade defies its critics” is apt here. Prices for a CO2 Certificate are climbing rapidly. In the meantime, the market price of well over EUR 20.00 per ton CO2 has increased more than threefold.

The trade in certificates is ultimately supposed to guarantee the goals of climate control. Usage of scrap is already helping this today. But scrap is also a rare commodity because of the time lag. From being employed in steels to its end of life, as a rule many years can pass before the products are once more available as a commodity. Scrap is, therefore, a rare, and because of its properties, a very sought after commodity. But it would seem that some recyclers are not too clear about this. They believe they would have a sales problem with a very competitive material.

As an environmental preventative measure, the Philippines, one of the newer flagships in international nickel ore production, have begun to limit areas being turned over to the mining economy. According to an article in Metal Bulletin, 29 of a total of 48 mines will be affected by this. The dazzling President of the Philippines, Rodrigo Duterte, is supposed to be behind the restrictions. The maximum area on which a mining company can mine at the same time is regulated by the amount in production. At the top level, if a processing plant is run simultaneously, 162 hectares can be mined at the same time. The rules do say, however, that if a company intends, for example, to mine a new area of 100 hectares, then there is the obligation of restoring a corresponding used area to its original natural state.

There are also mandatory buffer zones to be kept near streams and rivers. According to Metal Bulletin, Duterte, last April, is supposed to have told miners that present areas have to be reforested, and if he does not see trees in the coming six months which are as big as him, he would revoke all permits which had been granted. Independent of these threats, the mining companies have to also submit bank guarantees in order to ensure that the companies adhere to the new rules. And even the national industrial organisation, Chamber of Mines, is supporting these plans. It is certainly sensible, and it really has become a necessity. According to state data, the nickel ore production of the Philippines declined by 10 % in the first six months of 2018, compared to the same period of the previous year.

In the present environment of populist movements in Europe, including in Germany, the question has to be asked just why the established political parties cannot relate anymore to their voters. This is even harder to understand when in Germany, seen objectively, people are better off than ever before, despite some challenges. Even potential topics of major inequalities have not aggravated the situation much more. So why do populist parties, with their simple yet futile formula, have such resonance with voters?

Three reasons, although by no means conclusive, could be found in this context. Politics in Germany, for a long time now, have been dominated, above all, by fear: and just to name a few fears, migration, digitalisation with possible job losses, and increasing protectionism. And these issues have been discussed the worst. What is lacking with all the political powers at the moment is a serious positive vision for Germany, which the voters could rally behind. In times gone by there was the economic reconstruction, the economic miracle and then reunification. What is there now and in the future? We need an awakening, society has to be given a jolt.

Another explanation, though heard more seldom, is that the increased populist movement is an expression of the disappointment of voters about the impotence of governments and politicians during the financial crisis. Profits were individualised, losses on the other hand were socialised, and are now reflected in the national debt and low interest rates for savers. Despite all regulatory attempts, at the end for the voter, just too little has happened.

Not just the banks and financial institutes lost the trust, but also the State and politics. Some historians may be saying that parallels should be made to the economic crash of the 1920’s and the resulting political developments, but the legitimacy of this can be doubted, as there is a healthy labour market and no inflation. Politicians can only regain the confidence of the voters by showing their credibility. What is, however, then needed is new personnel, but in today’s climate and discussions about any issues, this is not very likely to happen.

Finally this statement made by a Swedish social democrat politician during the recent elections there does not really need much comment: ” For far too long, we have not taken the fears of people seriously, regardless of the reasons.” Whether the fears are “justified”, subjectively or objectively, plays no part in the feelings of the voters. It is the task of politicians to find answers to these fears. To ignore the fears leads to the people not being taken seriously and so do not feel properly represented. At best, they turn away from politics, otherwise they seek the available alternatives.

LME (London Metal Exchange)

LME Official Close (3 month)
September 13, 2018
Nickel (Ni) Copper (Cu) Aluminium (Al)
Official Close
3 Mon.Ask
13.350,00
USD/mt
5.878,00
USD/mt
2.026,00
USD/mt
LME stocks in mt
August 17, 2018 September 13, 2018 Delta in mt Delta in %
Nickel (Ni) 246.534 233.988 – 12.546 – 5,09%
Copper (Cu) 258.850 225.125 – 33.725 – 13,29%
Aluminium (Al) 1.120.250 1.051.200 – 69.050 – 6,16%

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