Winter sun to order

Nickel continues firm on the LME, but macro risks increase
The prices for nickel on the London Metal Exchange (LME) continue to be well supported and if it was just a matter of the parameters of the nickel market, a continuation into the new year would be everything else but excluded. Nickel demand, including in the (still) dominant stainless steel and alloy area and also the segment of battery production is high, and supply, according to product, is rather restricted, which also has a lot to do with the current logistical bottlenecks. Towards year end, even stainless steel scrap will become significantly scarcer since most of the small and middle sized companies, like almost every year, have already concluded their business as they like to keep any further taxable income away from the tax authorities until the following year.

In all optimism, it must not be forgotten that in Northern Europe, coronavirus is once more becoming the centre of attention as the winter approaches (although seemingly for politicians this comes as a complete surprise), China’s economy is stuttering at the moment, and the unaccustomed high inflation rates are certainly causing concerns for some. What, however, is even more suited to be a mood killer for the economy, are the geopolitical developments, which are taking place right now along the Belarus-Polish border and the Belarus-Lithuanian border.

The Belarus President Lukaschenko intends here, at the expense of human lives, to not just make needle holes in the EU outer border and migration policy but to hammer it down to the ground. And this is happening with the approval of his apparent protector, Putin. And in the EU it is really noticeable that, above all, a powerful common reaction is missing. Admittedly though, this is a very complex situation. There is a lot at stake. The scenes from 2015 of the Balkans and the Mediterranean, and also on the German border, are still strong in people’s memory, so amongst the general public there are not many romantic welcoming feelings for this to happen again today.

What is surprising is that despots always have the assumption that with the new and old super powers – whether it be now the USA, Russia or China – they still have genuine partners spiritually at their side. It is, however, more the fact that these dictatorial regimes are only supported as long as their military and political standings are of importance. If this reason disappears, as has been experienced, for example, in some North African regimes, then they are given the boot and it is not seldom that heads end up at the end of a rope

Therefore, dictators consider whose cart you are harnessing yourselves up to. The media names this as a new start or “spring” even though the chaos afterwards is much more than it was before. Above all, the civil population is always the one to suffer. An especially tragic example is Afghanistan, or rather its people, as, with the exception of Asia, nearly the whole world has sinned. A four part series, which is highly recommended, on the German/French television channel Arte, entitled very appropriately “The wounded country” explains what a proxy war leads to, using the many voices of contemporary witnesses. Such a shame that people with an ingrained sense of peace and a very human streak always have wolves amongst them.

As far as the omnipresent inflation is concerned, all the economic experts are not now convinced in unison that the dramatic rise in prices is of a temporary nature. The following section about the commodity super cycle could be one of several explanations for a further rise in inflation rates. In October the increase in consumer prices in the USA was 6.2%. This is a level which cannot just be put down as being the order of the day. The renowned German economic publication Handelsblatt, in a commentary about inflation in Europe therefore makes the challenge: “There is a need for a Plan B. The European central bank and the EU-Commission do not want to cause panic, but their appeasement attempts are not helping”. There is the danger that EU citizens may lose their trust.

But back to the nickel market in London. The current nickel price of USD 19,700.00/mt and higher should not give the impression that there are no short or middle term downward risks. Also, the present backwardation situation in the nickel market needs some attention, whereby especially those nickel products with a special tight market have a higher price for immediate delivery (cash price) than in three months. Usually, the rate for the 3 months future is higher because the goods must still be financed, insured and warehoused by the seller for this time period. This “normal” market structure is also called a contango.

The “back” situation is then a consequence of the low, and presumably further decreasing LME warehouse stocks, for the backwardation is not only an expression of physical scarcity, but also quite decisively expresses a technically tight market to balance LME contracts at certain maturities. These can, at maturity, be compensated by the necessary delivery, or pick-up, of LME recognised material. This has to be done in an LME warehouse.

Commodity super cycle may be coming
Commodity experts are not in agreement about where nickel prices are heading in the coming year. The state owned Peking Research Institute, Antaike, forecasts falling prices as soon as the global economy has recovered from the pandemic. So Chinese commodity experts expect that nickel supply will grow by 12% in the coming year, while demand will only record an increase of ten percent. Therefore, Antaike forecasts an excess of 45,000 mt in the supply of nickel. In their estimations, the commodity experts already take into account a further fall in Chinese NPI production, which has already had to be reduced this year because it is so energy intensive.

In contrast to this, at the beginning of November the US investment bank, Goldman Sachs, has reiterated its forecast that the commodity market is about to begin a super cycle. The recovery from the Covid-19 pandemic as well as global economic measures will boost demand. In addition, according to Jeffrey Currie, Global Head of Commodities Research, demand will be driven higher because of global decarbonisation, the rivalry between the USA and China for domination in new technologies und US infrastructure for the improvement of the quality of life.

Already at the beginning of the year, several media outlets were writing about the US investment bank forecast for a forthcoming commodity super cycle. At the time Goldman Sachs, as well as the reasons given above, also named China’s commitment to carbon neutrality by 2060 and the return of the USA to the Paris Agreement under the leadership of Joe Biden as reasons for a forthcoming commodity super cycle.

Reuters survey cautious for 2022
The financial news service Reuters once again carried out its regular survey, about the expectations for commodity price development, and the results were published on 27th October 2021. Is the predicted super cycle already in sight? This survey taken amongst analysts of leading commodity brokers and bankers resulted in the following outcome for the average price of nickel from all the forecasts. For 2021, the participants expect an average nickel cash price of USD 18,195.00/mt (as opposed to USD 13,772.00/mt in 2020), which is quite a phenomenal forecast, since the actual cash average in 2021 up to the 31st October 2021 was around USD 18,170.00/mt.

It does, however, become more interesting for the year 2022: Here the analysts expect only a small continuation of the rise. The reason lies in a shift in the supply and demand ratio. Whilst for 2021, a supply deficit of 62,000 tonnes is still assumed, an excess supply of 72,000 tonnes is expected for 2022 (see also the forecast of 45,000 tonnes from Antaike above).

This is not completely off the mark, because after the Winter Olympics which will take place in Beijing from the 4th to the 20th February 2022, it is expected that nickel pig iron (NPI) production will significantly increase once more – as long as prices remain consistently high. This is because, as well as further expansions in Indonesia, China would like to present the image of blue skies without smog to its guests. In order to attain this, the high-emission industrial production has been put back as a precaution.

No new approach. Even in the former Soviet Union and in Russia it is not uncommon today, at military parades and special anniversaries, for thick clouds to be broken up with chemical showers (often silver iodide) which is released from aeroplanes to let blue sky through even if just temporarily. In our democracies, we do not enjoy this treat. We have to take the weather just as it comes. But perhaps we shall soon have a sunshine political party if things carry on as they have been doing with all the various parties.

Gambling revenues as an employment market indicator
There are quite a lot of people who dream of making a huge fortune without having to do a lot of work. Unfortunately, in real life this just does not really happen. Of course, with every business success, as well as putting in hard work and having the right business model, a little bit of luck and the right timing is also a great help. Otherwise, it would be a case of being in the wrong place at the wrong time, just leaving empty pockets. This is, why there are none too few people worldwide who take part in lotteries, even in China, where gambling is especially very traditional. Bloomberg has reported that gambling can even tell quite a lot about the situation on the employment market. The turnover of the Chinese lottery fell in September by 13% to USD 4.9 billion compared to the August figures, and this was parallel to a rise in the (actual) unemployment rate. And this is not a coincidence. Lottery is mainly played by lower income groups, who want to better their financial situation by using the goddess Fortuna, otherwise known as Lady Luck.

However, lottery loses out when the unemployment figures are rising, for sometimes it is just not possible to pay for a lottery ticket out of the household money. Interestingly, this does mainly apply to the big cities and agglomerations, where costs are higher and there is also more of a magnet for migrants. While the official urban unemployment rate, during a period of cooling off in the Chinese economy, is said to have improved from 5.1% to 4.9%, Chinese assets managers at Soochow Securities Co. Ltd. recommend a look at the development of lottery turnover at least as an early indicator.

EU and USA reach agreement in the trade dispute for steel imports
The punitive tariffs introduced by the former President Donald Trump on aluminium and steel from the EU have come to an end for the time being. Both sides recently agreed a settlement in the dispute. In talks during the G20 summit meeting in Rome EU Commission President Ursula von der Leyen declared the agreement to be a “milestone”. US President Joe Biden also seemed to be relieved and spoke of an “important breakthrough”.

The agreement stipulates that the EU states in future are allowed to import quotas of steel and aluminium tariff free into the USA. In return, the EU is cancelling the special tariffs on Harley-Davidson motorbikes, whiskey and jeans. These had only been introduced as retaliatory measures for the tariffs introduced by Donald Trump. In addition, the import should be linked to carbon emissions on steel production. Both sides are convinced of being able to produce in a cleaner way than China.
The agreement has, in the end, a slight aftertaste for the EU. According to negotiating circles, in the future the EU will not be allowed to export more than 4.4 million tonnes of steel tariff free into the USA. This volume corresponds to approximately the amount of punitive tariffs imposed by Donald Trump. Domestically President Joe Biden is under pressure. With the compromise, Biden wants to keep his supporters in the American unions on his side.

Is the wooden knife an alternative to a stainless steel blade?
This newsletter cannot help but regularly emphasise the outstanding properties of stainless steel. Yet new findings in the science of other materials are also praised. The news outlet CNET recently reported about the publication of a US American scientist in the Journal of Matter. Researchers at the University of Maryland apparently managed to harden wooden knives enough so that they were three times sharper than stainless steel knives. Normally wood consists of up to 50% cellulose, which gives it its structural strength. The rest are weaker components. In a two step process, the weaker components could be removed from the wood so that all that remained was the cellulose. With proper care, such as regular oiling and sharpening, a certain longevity of the knife can be ensured. Using the same process wooden nails can also be made. In their publication the researchers summarise by saying that these hardened wooden knives could be a sustainable and cheaper alternative to plastic cutlery. There was probably not enough evidence to have made a direct comparison to stainless steel.