5

Year starts differently to expectations. Trade war and Brexit are only footnotes. All eyes are on Iran and Iraq. Confrontations with the USA are escalating. USA liquidates, Iran centrifuges.

5

So far Exchanges remain relatively calm. Market mood is that further escalations are not very likely. Cheap money plays its part. Nickel prices recover and are relatively stable. LME warehouse stocks much higher.

5

China’s scrap consumption could rise to 330 million tons. More scrap in converters to increase production despite reduction of capacities. Climate and environment protection is all the talk.

5

Indonesia wants to defend itself against EU complaints. Export ban on unrefined ores should help to improve domestic net product. Indonesia also wants to become a player in battery production.

The year 2020 begins turbulently
Towards the end of 2019, it could have been carelessly thought that the big upsets caused by the Sino-American trade war were finally on a constructive path towards a solution and the new year of 2020 would bring about a little more consistency. Before even being able to think, or even dream, this, lessons were going to be learned.

First of all, at the start of the new year, heavy protests took place outside the US Embassy in Bagdad, in Iraq. The USA followed by ordering the assassination of the Iranian General Soleimani, Commander of the Quds Brigade, a unit of the Iranian Revolutionary Guard Corps, responsible for special operations outside of Iran. The revenge of Iran was then to attack two US military bases in Iraq. At the same time, a civilian passenger plane of Ukraine International Airlines was also shot down near Teheran, killing all 176 people on board, mainly Iranian and Canadian passengers.

After lots of wriggling and writhing, the Iranian government finally had to admit that the plane had been “mistakenly” shot down by its own Iranian army. The security advisors of the American President Trump also had red faces, when asked about the four US embassies in Iran’s sights, a reason for the assassination of the General, actually knowing of no concrete targets.

In the meantime, the American government announced further economic sanctions against Iran, and for its part, Iran
declared it no longer feels tied to the atomic nuclear agreement, from which the USA had already withdrawn, and would begin to accumulate uranium in order to be able to possess nuclear weapons as soon as possible. Hardly a fortnight had passed in the New Year and the world had already been turned on its head.

So, as 2020 unfolds, it will probably be once more along the lines of “new game, new luck”. Each week there will be new material or old pieces of news being brought out for all to digest. Predictability has really been lost to the world and all its important players. And exactly this is poison for long-term investment and planning, and explains why the low interest rate of central banks, different from in the past, only creates inflation in small areas (stock market, real estate etc), but unfortunately does not evoke the desired strong investment in business. Brexit is, by the way, not being talked about much anymore, even though this will happen on the 31st January 2020. Even in Great Britain Megxit is now more in the news, since Meghan and Harry would like to become part-time Duchess and Prince. For the tabloid press this is certainly more newsworthy.

Financial markets (still) relatively stable
Up to now, stock markets have been relatively untouched by the developments as described above. Of course, there were short-term reactions to military events, but price levels always returned, in the main, back to the levels which had been held. This means, therefore, “business as usual”, as the cheap and, above all in abundance, money of central banks seems to plaster over every small and medium sized crisis. On the other hand, the economic importance of Iran cannot, of course, be compared to a player like China and therefore there is a relative indifference and also a certain rationality concerning the economic consequences of a conflict on the present level. Hopefully the markets are not proven wrong and there is no further escalation. No one would wish this.

In regard to nickel on the London Metal Exchange (LME), after a consolidation at the beginning of December, prices could recover to around USD 13,000/mt. In the meantime the metal is trading around the level of USD 14,000/mt, although at first, just below this which did cause an unsettled technical picture. The recovery began already before any expectations of a deal (part 1) between China and USA began to find pace, and also even though LME nickel warehouse stocks have started to increase again. At the moment they are once more over 173,000 tons, after a low of around 64,000 tons in November 2019, equal to a rise of 170% in just a few weeks.

Has the ominous buyer returned to the market and has now engaged the reverse gear (cf. previous coverage in recent reports) or are there other reasons? It has certainly become more clear than ever that the size of LME stocks is hardly useful as an indicator for the supply and demand situation. The actual and anticipated consumption is a crucial factor in price development. The actual movements of LME warehouse stocks seem to be more of a phenomenon of visibility, or rather invisibility, or in other words: the material was never used and was, therefore, never really gone, even though it may have seemed like that in the statistics.

If expectations about further price developments are examined, then it can be said that, fundamentally – i.e. away from the short-term technical gloom – signs for an improvement are increasing, especially even in the considerably weakened industrial economy. It was recently made known that German industrial production, an important indicator in Europe, was able to show a plus of 1.1% in November, the biggest growth in one and a half years. In addition to this, the previous slump in growth in October 2019 was adjusted from 1.7% to “only” 1%.

Should these numerous, and none too insignificant, crisis hot spots not worsen, with solutions only to be dreamt about, and twitter does not cause new turbulence, then the economy should really be able to recover further, having a healthy influence on demand for industrial products and commodities, as well as a stabilisation of those prices. Perhaps the buyers’ market in existence for such a long time could now be turned into a sellers’ market for a change. The whole of the value added chain of stainless steel industry would certainly deserve this after all the previous lean years.

China considers more scrap usage
According to statements of the China Association of Metal Scrap Utilization (CAMU), in reports by Metal Bulletin, China’s annual scrap consumption could increase to 330 million tons, and could then equal about half of Chinese steel production. Even if figures and estimates (from China) have to be viewed cautiously, the estimate does show, quite clearly, that even in China more thoughts are being made about scrap as being an important raw material. As well as economic considerations, it is very important that unnecessary environmental pollution be brought under control. After all, by using about one ton of steel scrap, about 1.6 tons CO2 are saved. According to CAMU, input material of steel production in China should be made up of about 20.1% scrap.

The Chinese government may have reduced capacities for steel production and reduced the number of blast furnaces, but now steel producers are trying to bypass these reductions by using more and more scrap in converters, in order to increase production numbers again. In this regard CAMU points out that, in 2019, China gave more than 180 companies authorisation to process scrap which, if positively taken up would produce an additional 40 to 50 million tons of scrap capacity.

Australia’s Prime Minister appears enlightened
Our last edition reported about the demands of the Australian Prime Minister Scott Morrison that economic interests should go beyond environmental interests. Morrison saw the “smug and egotistical activists” of climate control as a danger to the standard of living of his Australian citizens.

Hardly two months later, a change was seen. It has become more than ever clear that the biggest threat to Australians does not come from climate activists but from the terrible prevailing bush fires. In an interview with the television channel ABC, Morrison reacted to the criticism of his crisis management and admitted failures. For the first time he actually admitted that climate change does have consequences and is responsible for the drought. “We want to reduce emissions”, according to Morrison, who, previously, was always a big proponent of the coal industry.

Indonesian President defends his economic policy
As reported, the European Union (EU) made a complaint at the end of last year to the World Trade Organisation (WTO) about the Indonesian export ban on unrefined nickel ores. The European Commission’s basis for its complaint was that the export restrictions by the biggest economy in South East Asia would unfairly limit EU producers access to raw materials.

The Indonesian President, Joko Widodo, in his response, announced that he would not go back on his policy to curb exports and Indonesia would defend itself against the complaint made by the EU with the WTO. Widodo repeated his long-term position that his country should be exporting less raw materials and more processed goods, in order to create more added value and jobs at home. The goal is to create a downstream industry which uses its nickel resources. Widodo said that, if necessary, Indonesia would face any charges, as the export ban is in the national interest of the country.

Only a few days later, official export statistics showed that exporters seemed to be indifferent as to where the nickel ore is processed. In November 2019, exports of nickel ore were 2.7 million tons, 76% more than in the same period of the year before. In other words: the attempt was being made to deliver as much unrefined ore as possible, especially to China, before the tough export ban was implemented.
As already mentioned, Indonesia, as well being a producer of stainless steel, would also like to become a leading supplier to the car industry. With the help of HPAL technology (High Pressure Acid Leach), nickel sulphate, an important component in battery production, can be won from nickel ore.

The process involves crushing nickel ore and mixing with water to a sludge which is then heated. Then the hot sludge is pumped into a type of gigantic pressure cooker where acid is added. The result is that nickel sulphate can be extracted leaving behind just sludge. At the moment, five processing plants are being built in Indonesia to produce nickel sulphate using HPAL technology.

At the beginning of January 2020, the Indonesian government authorised environmental studies for processing plants for nickel chemicals of battery quality in Morowali, Central Sulawesi. This was a requirement for the construction of plants to continue. Reuters refers to its source as the Indonesian Minister for Maritime and Investment Affairs. The Minister was, unfortunately, not able to say whether companies had also received authorisation to dispose of waste into the ocean. It can only be hoped that this has not been given.

Asian competition threatens European steel industry
The Handelsblatt periodically discusses in depth the European steel industry and likes to turn attention to the former industrial icon ThyssenKrupp. Headlines can dramatically tumble over one another such as “Start of the Exit”, “The End of a Giant” or “The Decade of Decisions” (08.10.2019, 11.10.2019 and 09.01.2020).

In the report of 09.01.2020 the author describes the challenges facing the European steel industry. As well as higher costs for energy and personnel, competitors in Russia and India are often backward integrated and have their own mineral deposits available, which protect steel works from strong commodity price fluctuations and ensures availability. In addition, the global steel market is seriously fragmented, so a structural change to green steel is difficult to initiate. Investments in hydrogen for steel production are enormous and can only be taken into account if European policies provide the right framework. An extra burden for European steel producers is the CO2 trade. For every ton which is not covered by a free of charge CO2 certificate, European producers have to buy a CO2 certificate which is continually increasing in price.

The author, in the article, makes valid points. Unfortunately, it is not mentioned that European producers of steel and stainless steel have already contributed a lot in saving CO2. Use of scrap in production leads to a massive reduction of CO2 as opposed to using primary commodities, especially, and quite pointedly, in comparison with new Asian competitors. If the whole added value chain is taken, then European steel is more environmentally friendly, especially as most Asian competitors use primary commodities. The ever more increasingly expensive CO2 certificates are an increasing burden on European producers. If the full value chains for steel production including raw material supply would be taken into account, then European steel producers could at least in part be benefitted financially by their higher usage of scrap.

The introduction of a “scrap bonus” could certainly, at one fell swoop, reduce CO2 emissions. This has already been analysed in a scientific study by the Fraunhofer Institute IMWS. Here is the link for further details about the finished study: https://bdsv.org/unser-service/publikationen/studie-schottbonus/ 

LME (London Metal Exchange)

LME Official Close (3 month)
January 14, 2020
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
13,770.00
USD/mt
6,280.00
USD/mt
1,797.00
USD/mt
 
LME stocks in mt
  December 9, 2019 January 14, 2020 Delta in mt Delta in %
Nickel (Ni) 69,276 177,600 + 108,324 + 156.37%
Copper (Cu) 190,825 128,100 – 62,725 – 32.87%
Aluminium (Al) 1,288,150 1,381,175 + 93,025 + 7.22%

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