China’s imports fall
Latest trade figures from China for the month of April have worsened markets’ sentiment. Growth in exports was “only” 8.5% versus a year ago, significantly lower than in March when the growth rate was an extraordinary 14.8%. Imports, which are seen as an indicator of domestic economic activity, even fell by almost 8%. In the previous month this figure was only minus 1.4%. So it is not surprising that many markets initially reacted to this news with falling prices.
Since the lifting of the strict corona measures and the country opening up again, China’s economy has not really developed quite as dynamically as expected. However, also China is not an island and is, therefore, just as influenced by the unfortunately numerous geo-political, interest rate and financial crises worldwide. Yet, according to statements by analysts from Macquarie, for example, there is no need for panic, as the March figures were strongly distorted on the upside by one-off catch-up effects. April values were also heavily influenced by weakening global demand and lower energy prices. The latter can be basically considered as positive in the medium term regarding fighting inflation outside of China, and energy prices within China.
In any case, it is advisable to also take a look at the details in the statistics, as the published data involves monetary quantities which can be significantly affected, for instance, by volatile commodity prices. As an example, oil imports to China in April only fell by 1% in volume, but in monetary terms there was a drop of 29% (!). Then again, a further, quite significant share of the fall in imports is due to electronic components, which has been caused by a general downwards trend in the tech economy.
However, according to opinions here, these two elements cannot yet really indicate a sustained weakening of Chinese industry. And, by the way, China’s government still has enough gun powder to take stimulus measures. A large number of market participants do not seem to take this into consideration, or they see this differently, as prices for nickel on the London Metal Exchange (LME) fell in this environment to levels of around USD 21,700.00/mt., but then could once again recover to over USD 22,300.00/mt. In April and at the beginning of May, prices were still as high as USD 25,500.00/mt.
Nickel weaker – market segmentation progresses
The recent Reuters survey among leading commodity analysts is again weaker for nickel. Since the start of the year prices have been dropping – currently prices are about 20% below the levels at the start of the year – and the survey does not exclude further reduction in prices. For example, professional market observers expect a drop to a level of around USD 22,000.00/mt by the 3rd quarter. The result of the survey suggests the annual average for 2023 could fall by 8% in comparison to 2022. Copper is in contrast to this: here the analysts see possibilities for a recovery in the coming months, as well as stable to slightly higher price levels in the annual average.
An important reason for the analysts’ “bearish” view on nickel is the excess supply, mentioned already in the last edition of the Oryx Commodity News. The International Nickel Study Group (INSG), an independent multi-governmental organisation based in Lisbon, expects for this year an excess of a good 200,000 tonnes – or around 8% of demand. This is based on the substantial double-digit increase in nickel production to around 3.3 million tonnes, while demand, in a generally weaker market environment, will only have a moderate single-digit increase to a “mere” 3.1 million tons, thus below the expected supply. But what is behind the surge in production? Responsible for the increases is basically a further expansion of the already exorbitant nickel production capacities in Indonesia, and especially those for nickel pig iron (NPI).
Analysts of Macquarie Bank estimate that Indonesian producers in April achieved an annualised record nickel output of 1.8 million tons in April. This would be almost 60% of the expected total supply. The expansion of these production capacities and the resulting excess in supply is, in many respects, remarkable, for this is so-called Class 2 nickel, which is typically used in the stainless steel industry or from which intermediate products for nickel chemicals can be obtained. In other words: this situation is now causing market participants to have cautious expectations on the LME nickel market and also, already for some time, has resulted in significant discounts for nickel valuations of Class 2 nickel or nickel chemicals in comparison to the LME.
The Class 1 nickel segment, in estimations of the Macquarie analysts, nowadays only represents slightly less than a third of production expected for this year. It is, however, the only material that in its very different forms, cathodes, briquettes, pellets etc is LME deliverable. And, seen historically, is also the product category which has caused either undersupply or oversupply in the nickel segment. A gradual easing of the situation is only expected by the analysts in the second half of 2023.
Climate protection is also a matter of image
Everyone wants finally, and quite rightly, to have a share in the positive publicity of climate neutrality and the path towards this. Politicians first and foremost, but also companies. There is a media overbidding competition, which reaches far beyond information, clarification and awareness. Governments are at times being surpassed by private market participants. But when it is about real impact not only on people, but also on companies, then probably just a little more democratic legitimacy might be appropriate.
As such, quite a few banks and financial institutions are checking through their customer portfolios for “climate killers”. Their aim is actually to not just bring their own emissions down to net zero, which is relatively easy for a service provider, but also to reduce the customers’ emissions. For this reason, and to document the seriousness of their own efforts, the emissions of the entire customer portfolio should be reduced to zero in the shortest possible time. However, the policy of keeping to this maxim of taking the customers on the ESG (Environmental, Social and Governance) journey and not differentiating between them, does not necessarily seem to be the target-orientated approach, also in view of the total emission savings that may be realised.
Instead of taking the perspective of splitting from customers in emitting industries, it would be vastly important to motivate them, especially those, where the biggest impact could be achieved. For example, something could be achieved more quickly with a highly modern coal-fired power plant than just by targeting the maximal solution. Motivation can only happen if discussions are ongoing. In addition, the legitimate interests of the emerging countries regarding their expectations on growth and prosperity must not be forgotten. In this respect, financing of climate protection projects in emerging markets by banks and investors from Europe and the USA that of course do not come risk-free would probably be the most effective approach short-term and a genuine social responsibility. In the end realism wins. Hopefully this is sooner than later.
Package of measures to secure supply chains of critical raw materials
For numerous raw materials important for the energy transition, the European Union (EU) is totally dependent on third countries . Among them are often suppliers from only one third country that holds a monopoly position. This should change in the future. Therefore, in mid-March, the EU Commission presented a legislative proposal which should promote European raw material extraction and recycling.
The new proposal does not only contain an updated list of raw materials that are considered crucial, but also strategic raw materials that are needed for the energy transition and ultimately to achieve the ecological goals of the EU. Therefore, among other things, the aim is to create resilient supply chains for critical raw materials, to invest in research and innovation and to strengthen the circular economy. In addition to all this, strategic cooperations will be sought with partners outside of Europe. This is now the fifth revision of the list of critical raw materials. The first was published in 2011 and contained 14 items. In the meantime the list contains 34 raw materials.
Nickel and copper do not fulfil the requirements for critical raw materials. However, both metals have been classified as strategic. Nickel, for example, has not been classified as critical since there is a good diversification in supply. However, the EU admits that the concentration of nickel mines and private contractual commitments have not been considered in the latest assessment. Both factors could become a problem for nickel supply in the future.
Some time ago already, various industry bodies took a stance to exert some influence on the legislature proposal. In January 2023, in a joint press statement made by EUROFER, the trade association of the European iron and steel industry, and WindEurope, the association of European wind energy, both interest groups announced that the legislative initiative should cover all raw materials, which are necessary for energy transition. The view of both organisations is, therefore, that steel scrap should also be classified as a critical raw material from now on. However, this demand has not been taken into consideration by the European Commission.
The news magazine Focus published an interesting article in its February edition about Germany’s dependence regarding critical raw materials. 21 raw materials are essential for the German economy. These are purchased 100% abroad. China is an important raw material supplier. Should there be an invasion of Taiwan by China, then Germany will be faced with the question of whether raw materials can be continued to be imported from China.
The article does, however, also give the reader some encouragement. There are already some initiatives that should lessen import dependence. For example, lithium is being mined in small amounts in Germany. Other countries, which have small reserves of raw materials, have already recognised this problem and have also taken steps. Japan has built up a stockpile of raw materials which should cover domestic demand for 180 days. For this purpose, the state-owned company Japan Organisation for Metals and Energy Security was already founded at the beginning of the 2000’s with 180 employees in order to carry out this task. The company does not just buy raw materials, but also invests in raw material projects abroad.
However, in the near future, Germany will remain considerably dependent on other countries for the supply of its raw materials. Germans will also have to ask themselves the question of how much environmental destruction can be tolerated domestically, in order to remain prosperous. There could be far more controversial discussions than there have been in the past about fracking for shale gas and open cast lignite mining in Garzweiler.
Salzgitter Group invests in scrap recycling in the Harz region
Mid-February, Salzgitter AG announced that it had taken over the recycling company, Must-Metalle-Container Recycling GmbH. The medium sized company in Goslar in the Harz region is specialised in the scrap and metal trade. The company will continue to operate independently within the Salzgitter Group and trade under the name of Harz Schrott /Scrap and Recycling GmbH.
The acquisition of the scrap trader fits in with the Salzgitter Group’s strategy of producing steel with low emissions in the future. Recycling should, therefore, become an integral part of sustainable steel production.
Lately there have already been various transactions where steel producers have invested in scrap recyclers. For example, the steel giant, ArcelorMittal bought four recycling companies in 2022. Industry insiders expect there will be more acquisitions in the future, as scrap is a sustainable commodity, which does not have to be imported from third countries.
LME (London Metal Exchange)
|LME Official Close (3 month)|
|May 15, 2023|
|Nickel (Ni)||Copper (Cu)||Aluminium (Al)|
|LME stocks in mt|
|April 11, 2023||May 15, 2023||Delta in mt||Delta in %|
|Nickel (Ni)||42,150||39,294||– 2,856||– 6.78|
|Copper (Cu)||62,275||76,875||+ 14,600||+ 23.44|
|Aluminium (Al)||512,725||568,200||+ 55,475||+ 10.82|