5

LME nickel price once more over USD 15,500 a ton. Stainless steel production and economy, especially in China, clearly recovering. Share of the 300 series significantly rose. This leads to higher nickel consumption.

5

ISSF published statistics for the 2nd quarter of 2020. Due to Covid-19, output for the 1st half year remains below expectations. As INSG reports, the deficit has turned into a surplus.

5

Another roll-over of the ferro-chrome benchmark price for the 4th quarter of 2020. The slight increase, generally expected, did not happen. Outlook for the 1st quarter of 2021 unclear, especially after a renewal of increasing infection numbers.

5

China uses more and more stainless steel scrap. Technical restrictions and availability limit the use of scrap. Regulations in China should be adapted to suit the high demand.

“Nickel prices balanced”
After nickel prices consolidated on the London Metal Exchange (LME), almost during all of September, down to a low of just over USD 14,000.00/mt, October saw a definite recovery. Prices firmed to around USD 15,700.00/mt, once again at levels which had been already reached at the end of August/beginning of September. It would seem that because of the continuing Covid-19 pandemic, the strong, global stainless steel production, especially in China and Indonesia, has come as a surprise.

But at these price levels for nickel the air becomes a little thinner. Basically, even though all sorts might happen on the LME nickel market, in view of the present macro economical outlook, an advance to USD 20,000.00/mt or higher is, however, rather unlikely. The analysts of Macquarie Bank are also of the viewpoint that the nickel market and its prices are momentarily held in certain equilibrium. As their publication describes quite succinctly, when looking at and analysing stainless steel production, where demand for nickel is highly important, it should not be neglected that the higher nickel containing 300 series in China and Indonesia grew by 28% in September compared to the previous year.

Even if the whole of the stainless steel production in these two countries remained more or less unchanged for the total year so far, the 300 series in China and Indonesia has already increased by 5%. Just by the quantities which are produced there, the varying development of different qualities per year quickly produces an additional nickel demand in the higher 5 figure tonnage bracket, without the total tonnage in stainless steel production changing at all. In addition, there is the respective availability of stainless steel scrap which is not constant over time, so that when availability is lower, more primary nickel has to be used.

Living with the virus
Even without looking at the infection numbers which are published daily, there are other early indicators, such as the stock market or the amount of toilet paper available in the discount shops, which can tell even the most sensitive person that the Covid-19 pandemic is going in the wrong direction in Germany and in other EU countries. The safe and effective vaccination, the hope for all, seems to be as far away as ever, especially since it was announced that the clinical trials of both Johnson & Johnson and Eli Lilly have been interrupted due to the safety concerns of those taking part in the trials.

It is not easy for governments and the untiring scientists working vigorously in research to admit that although a lot of lessons have been learned already since the spring, there is still much about the virus’ behaviour which is unknown. This is no criticism, just a confirmation of fact and arises from the nature of the matter. However, the regulation frenzy displayed at the moment by politicians seems to be more and more contradictory and to just serve the purpose of covering up their helplessness. “One is allowed to drink oneself into a coma up to 11.00 p.m., but after 11.30 p.m. nothing more is allowed”, was the mocking statement made by Dr. Andreas Gassen, head of the German National Association of Statutory Health Insurance Physicians.

After the refugee crisis, the German government understandably wishes to avoid, at all costs, a second loss of control which could threaten it. Voters could just resent this. So, just as the effects of climate change are global, the same is valid for the consequences of the corona crisis and, especially, the (protective) measures which accompany it. This is a global problem which also needs a global perspective and not one of pure nation-state, even if, as always, everyone is looking out for themselves. But how can compromises be hoped for in climate change in, for example, African and Asian countries, if now, due to corona measures, millions of people are dying of hunger, or are dying not just because of corona but because of many other sicknesses which are now even more difficult to manage and treat. However, these latest figures are not published on a daily basis and are therefore not so shocking.

Perhaps it is now time to admit to people that the understanding is still very limited and it has to be considered how we can live with the virus in the years to come. For it is becoming increasingly more improbable that there will be no eradication, unless there is a fortunate occurrence whereby nature makes a spontaneous mutation.

The following example of an interview with a leading scientist, who certainly does not belong to the group of corona deniers, Gérard Krause, head of the Epidemiology Department of the Helmholtz Centre for Infection Research in Braunschweig since 2011, gives a precise picture of the situation at the moment. Asked by the radio station, Deutschlandfunk, on the question of using a limit of 50 new infections per 100,000 inhabitants within one week, he answers “I have never understood anyway where this comes from. It would be interesting to learn how this value was defined.”

Stainless steel production recovers slightly in the 2nd quarter, but only in China
The International Stainless Steel Forum (ISSF) has released the figures for stainless steel production in the first half of 2020. As expected, production in the 2nd quarter 2020, with the exception of China, declined in all regions. In China, stainless steel output could recover quite significantly from 6.08 million tons in the 1st quarter to 7.88 tons. However, all things considered, even for China there was a cumulative minus of 2.7% for the half-year compared to the same period of the previous year. In contrast, other Asian producers (but without the weighty stainless steel nations of South Korea and Indonesia) were hit hardest with a minus of 23.9% and the USA with minus 20.3%, and even the Europeans, with a minus of 16.3%, are not very far behind. In this year, overshadowed by Covid-19, world-wide stainless steel production of 23.67 million tons is well below any expectations.

The figures for the 3rd quarter should present a better picture on the whole, but the 4th quarter should be viewed with a little more caution, as globally, the cases of people being tested positive for coronavirus are once more on the increase. This means that more friction between production and demand in commodity supply cannot be ruled out. The general sentiment of private and corporate consumers could soon fall again. In regard to this, the report of the International Nickel Study Group (INSG) is quite timely. It states that the primary nickel surplus is slightly reduced, most recently 8,900 tons in July 2020 compared to 14,700 tons in the previous month. For the first 7 months of this year, however, the INSG also confirmed a surplus in supply of around 90,000 tons. In 2019, in the same timeframe, there was a deficit of around 35,000 tons nickel, but then of course there was no Covid-19 at that time.

London Metal Exchange can breathe again
As the news agency Reuters reported, the Bank of England and the European Securities and Markets Authority (ESMA) have agreed that banks in the European Union can continue to use clearing houses in London for settlement of derivative transactions, such as LME nickel futures and options, for a further 18 months, from January 2021 to June 2022. Before this the EU had already granted UK clearing houses access to the EU for a further one and a half years. This is also of importance for the London Metal Exchange (LME), since the clearing house LME Clear is important for the settlement of transactions on the LME.

On the basis of a contract with clearing members, the clearing house nets out mutual claims and liabilities and so makes an important contribution to a functioning LME market. The economic advantage is that credit institutions and brokers no longer have to be concerned about the risk of default amongst many of the counterparts, only with the default risk of just a few clearing houses. LME Clear, LCH and ICE Clear Europe are the only three clearing companies in Great Britain which have been granted this temporary access to the EU.

As the result of Brexit, the membership in the EU ends irrevocably at year end 2020 and with it free access. Brussels has, however, made it clear that banks in the downsized EU should use the 18 months to reduce their dependency on the clearing houses of Great Britain. The British, of course, see this differently and, on their own admission, are trying to negotiate with authorities a long term arrangement for permanent access.

FeCr Benchmark remains stable also for the 4th quarter
The European reference price for high-carbon and charge chrome qualities remains unchanged at USD 1.14 per lb for the third time in a row this year. It would seem that in the last negotiations to determine this future-orientated indicator for South African ferrochrome for use in steel works in Europe, the recognition and expectation has prevailed that even for the last quarter of the year, there will be no major change in either one direction or the other. Spot prices for ferrochrome are usually lower, because individual discounts on the reference price are negotiated between supplier and consumer. Market observers and analysts had actually tended towards a slight increase, but this, however, has not materialised.

China uses more stainless steel scrap
Correspondents of Metal Bulletin, or Fastmarkets as the publication is now called, report that in China, stainless steel producers appear to have increased their use of stainless steel scrap in the last two months, to try to optimise their raw material costs in a time of climbing ferro-alloy prices. In particular, costs for material containing primary nickel had risen significantly at times as a result of increased nickel prices on the LME. If the share had been, up until recently, 15%, then the share is now judged to have increased to 20 to 30%, and for some plants, even much more. In comparison, up to 90% stainless steel scrap is currently used in the EU.

Ultimately, only the limited availability and technical restrictions set a limit on how much scrap can be used world-wide, especially in China and Indonesia. However, just an increase of “only” 5% in China has wide ranging consequences for the volume flows of stainless steel scrap, as well as for the extremely positive environmental and energy balance, as China has about 30 million tons of annual stainless steel production. If 5% more were to be consistently used there, this would correspond to 1.5 million tons of stainless steel scrap and this is not even available in the quality which would be required.

European stainless steel recyclers have the biggest know-how in processing, as, after all, stainless steel was invented in Europe, and here there is also the longest history and experience of using this sustainable commodity. According to the research of the Fastmarkets correspondents, even the nickel pig iron (NPI) production has been affected by the higher scrap content after NPI prices had climbed to new highs this year. Stainless steel scrap, it would appear, has a balancing function in China, for the volatility is supposed be a lot lower than that of NPI, for at least this is what some stainless steel producers report.

With the significant recovery of stainless steel manufacturing, which had initially been reduced due to Covid-19, in China now there is once again more (new) stainless steel scrap available, which is not yet fully the case in Europe. But, of course, not every producer in China is readily able to increase the use of scrap so easily, whether because of technical restrictions of the furnace infrastructure, as already mentioned, or whether because of a lack of access to sufficient supplies of stainless steel scrap.

The current regulation on scrap imports based on quotas is another reason for limited availability, but this will soon change as the Chinese authorities plan a regulatory adjustment. Professionally processed secondary raw materials, such as those used in Europe, should be allowed to cross the border unhindered. Also, the processing know-how could lead to a higher availability in general, for up to now, scrap has not been used efficiently enough. As well as this, the Chinese middle and upper classes can become more aware of environmental issues, so that the internalising of negative climate costs from the energy intensive production of primary commodities, as in the European Union, can only be a question of time.

In this respect, the trend of increasing use of stainless steel scrap should continue in China, as so far, the quotas have been much lower in comparison to other developed economic regions and also significantly lower than the global average.

The car industry relies on nickel
The entrepreneur Elon Musk continues creating fantasies in the nickel market. At the end of September, the Tesla founder promised that in three years their own manufacturing costs for batteries would be 56% cheaper whilst the performance would be increased by 16%, compared to present levels. This is to be achieved by having higher nickel content in comparison to cobalt. To realise this, the company plans to use nickel in pulverised form instead of sulphate. According to Musk, nickel is the cheapest and, at the same time, the material most rich in energy. Some weeks later the Glencore CEO, Ivan Glasenberg, during the Financial Times Mining Summit, spoke about discussions with car manufacturers, without specifically naming any company.

LME (London Metal Exchange)

LME Official Close (3 month)
 October 19, 2020
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
15,704.00
USD/mt
6,773.50
USD/mt
1,859.00
USD/mt
 
LME stocks in mt
  September 21, 2020 October 19, 2020 Delta in mt Delta in %
Nickel (Ni) 236,502 237,342 + 840 + 0.36
Copper (Cu) 78,425 183,900 + 105,475 + 134.49
Aluminium (Al) 1,499,100 1,406,550 – 92,550 – 6.17

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