5

Nickel takes a tumble only to recover again. The music is being made in other areas. Evergrande, China data, inflation, shutdown in USA, tapering. Enough there to destabilise markets.

5

Even Indonesia wants to become greener. Introduction of a carbon dioxide tax adopted. A courageous step for one of the biggest coal exporters. But at home there is still a huge amount of smoke.

5

Fibs can still be told. Or are we already beyond that? How lobbyists mix up facts. It is their job after all. Or are there limits? The extraordinary can only be reached by consensus.

5

After ED&F Man in 2007, finally there is a new LME Ring member again. Despite an uncertain future, Sigma Broking Limited shows courage. The focus is probably on investors and funds not yet involved on the LME.

Caution is the mother of wisdom
The nickel price on the London Metal Exchange (LME) lost some ground recently. After the high in the middle of September of just short of USD 20,500.00/mt, the 3 months price took a rapid fall. By the end of September, it had reached a relative low of almost USD 17,700.00/mt. However, this is where the futures market came to a standstill. A recovery movement began, with not only fundamental but also technical aspects. So far, this has led to a level of USD 19,450.00. Meanwhile the nickel future in London is once again trading above USD 20,000.00/mt.

A trigger for the correction had probably less to do with fundamental factors, but more with a generally increasing uncertainty in the markets with regard to the future outlook. This is mainly due to the rather mediocre economic data from China. This economic and military superpower has such dominance for demand in many markets, as was seen just thirty years ago in the USA (and Europe). In this regard many market participants, especially the speculators, look to the Far East in order to be able to judge what will happen to prices in the various investment segments.

For a while, the Chinese property developer, Evergrande, was making the headlines, and caused a great deal of nervousness, especially during the Chinese national holidays. There were fears that this shaky giant could lead to market distortions because there was a possibility of interest payments not being made after the holidays. The Chinese central government and the company were, and still are, doing everything possible to minimise the damage, also for reasons of reputation and power. And it is well known that the pockets of the Chinese state can be very deep, but yet not for every reason.

This is why it can be all the more suspicious that extensive circles are making every endeavour to talk down the possible influence that a collapse of this heavy weight could have. Any comparison to the Lehman bankruptcy during the financial crisis must not be made at all. It could be read that the global interdependence of this property developer is supposed to be relatively small, and therefore any damage would be more confined just to China itself. But who really knows this with any certainty. And even a significant negative impact on the Chinese economy would presumably be enough for a destabilisation on a global scale.

As far as the commodity markets are concerned, however, it would be not much of a concern that fewer raw materials, such as copper and nickel, would flow into the Chinese construction industry, but more about speculative investors withdrawing from the investment segment of commodities by selling off positions, which was evidenced already by the abrupt collapse of base metal prices. Or they could even take new short positions in speculation of a price drop. It could even be thought that the negotiations in the US Congress about raising the debt ceiling to avoid a shutdown could have had an influence. But this is most probably unlikely since these battles between the government and either the Democrats or Republicans depending on ruling power, while full of media interest, have almost become a regular tradition over the past decades, and which always end in an agreement.

A far greater influence can already be seen with the present inflation data, as fear is growing amongst speculators that the party on the stock markets – fuelled by the cheap money policy of central banks – is perhaps coming to an end quicker than had previously been thought. Caution is therefore the mother of wisdom. The central banks have put themselves into a difficult situation through the excessive debt financing, which has made it almost impossible to take the necessary countermeasures by raising interest rates.

How “perverted”, and unfortunately such a word has to be used, the situation has actually become is made clear with the following news. The labour market data in the USA were significantly weaker than analysts were expecting. What was the consequence? The American stock markets recovered appreciably, because it was now expected that the Fed could wait a while longer before making its announced start in tightening money supply. The example shows how little influence the real economy still has on price developments. Medium to long term this cannot be healthy. Therefore, as far as the last recovery of nickel prices is concerned, this development is still fragile and must continue to be monitored.

Indonesia has a green vision
The Reuters news agency, along with others, has reported that Indonesia could soon be the fourth Asian country to introduce a carbon tax. However, there are warnings that, besides implementation challenges, this could lead to higher energy costs, so reducing the competitiveness of domestic industry and trade. The introduction of such a tax is part of a bigger adjustment to the tax system that was passed in the Indonesian parliament recently. An increase of the value added tax and the cancellation of an originally planned reduction of corporate income tax are also part of this package.

The carbon tax is supposed to be a rate of 30 Indonesian rupiah per kg CO2 equivalent, equal to about 2.10 USD per tonne, and so less than half of the originally suggested 75 rupiah. In comparison, the carbon price in the European Emissions Trading System is, at the moment, between 50 and 60 Euro per tonne with a strong upwards tendency. But at least, Indonesia has now also made a start. By 2025 a functioning market for carbon dioxide should have been established.

This also leaves no doubt about where the journey is heading globally in regard to climate change and emissions trading. However, there is clearly a limit to everything, for an end to energy production from coal fired power plants has not been envisaged before 2056. Nevertheless, Indonesia would like to reach the emissions goal of net zero already by 2060 or even earlier and not in 2070.

It is, therefore, all the more important that companies worldwide, as well as avoiding direct emissions from energy production and consumption, are also careful in their choice of commodities, checking the sustainability and indirect emissions for the production of these raw materials. It should actually not be necessary to mention that in this aspect, recycling raw materials such as steel and stainless steel scrap are given even greater importance.

It should also be noted that this is an enormous and courageous step for the Indonesian government, for Indonesia belongs, as one of the largest exporters of thermal coal and nickel products such as nickel pig iron (NPI), to the eight largest carbon emitters on the planet. No wonder, as 87% of energy production in Indonesia is still derived from fossil, non-renewable sources. The goal on all sides is to encourage industry to make the transformation to a cleaner energy production and manufacture of goods in general by internalising the costs of climate change.

Economic shocks should still be avoided in this process of change in the interests of a continuous growth of national economies, yet it cannot happen without a regulation of the markets, for usually CO2 had no price and therefore had not been considered in any price mechanism. And the goals are challenging, as the time for a global counteraction is running out. In this context, a lot has to be said for those already advanced countries, in terms of regulation and prosperity, to give assistance to the emerging nations in the common interest. However, other coal producing countries, such as Australia and India are also grappling with the difficult task of reconciling the environment with economic development.

Export tax on nickel products under discussion
At this point, there is also more news to be reported from Indonesia in regard to nickel exports. As Fastmarkets summarises, according to the investment minister Bahlil Lahadalia, Indonesia is examining the possible introduction of an export tax on nickel products with less than 70% nickel content. The aim is to further increase the value added chain within the country and so indirectly stimulate investment. There has already been a success with an export ban on unrefined nickel ores, resulting in the establishment of an extensive nickel and stainless steel producing industry.

Just recently the nickel based battery production has been brought to the fore, and there would be no objections in developing a manufacturing base for electric vehicles, quite to the contrary. Because of the large nickel deposits, Indonesia possesses quite a leverage to actually realise such downstream investments. However, they should not yet overstep the mark with a sudden policy and course change, as investors hate nothing more than planning uncertainty. But to show that we are not talking about castles in the sky here it is proven by the fact that the South Korean companies, LG Energy Solution and the Hyundai Motor Group have just started to build a battery factory in Indonesia with an investment volume of USD 1.1 billion.

Improper mixing of facts
It is not without reason that the European pharmaceutical, automobile and steel lobbyists belong to the most influential industrial interest groups. Enormous budgets and many, well-trained individuals positioned at the centre of decision making, such as for example in Berlin and Brussels, are always ready to exert influence where it is wanted and sometimes even needed and demanded in the political process. In this way, the views of political decision makers and officials of the executive can be steered in the “right” direction and sometimes even be influential in the drafting of laws and regulations. After all, politicians and administrators sometimes lack sufficient expertise and above all, the time.

Now in October, however, the European steel association EUROFER and three more non-ferrous metal associations have published a paper outlining their position, very appropriately shortly before the revision of the EU Waste Shipment Regulation, which to go into any detail would go beyond the scope here. To summarise in a few sentences (thankfully these sentences are already printed in bold in the paper), EUROFER and Co., representing their member companies, make the following demand: To fulfil the EU’s Green Deal and industrial objectives, EU exported waste to third countries must in the future be treated to equivalent standards and techniques as in Europe.

In principle, this sounds quite sensible if talking about exports of mixed, perhaps even hazardous industrial and household waste, which have to be sorted and processed and remaining residues have to be disposed of. But it must be clear to everyone, that the waste referred to by EUROFER also includes all steel, stainless steel and non-ferrous metal scrap that have already been processed according to EU standards. These are exported, for example, to steel works which, using the logic of the position paper, are considered as waste treatment plants in the non-EUcountries.

These steel works are, in many cases, of a more recent age than the infrastructure of the steel industry in Europe, with far more modern facilities and, especially when it comes to steel scrap, with electric arc furnaces which are (can be) operated with sustainably generated electricity. This export is, therefore, very sensible for the global climate, by the way, as opposed to EU’s steel production in blast furnaces operating with coal, even when taking into account the future, expensive, hydrogen technology.

The paper speaks, on the other hand, of a “level playing field” and the environmental and social damage which must be averted in the developping countries, as well as looking at the health and safety aspects there. As an example, exports of electronic scrap in the informal recycling sector in Africa are mentioned. Amounts of scrap, in any form, could, it is argued, be absorbed in Europe and would only, therefore, be exported because higher prices could be paid because of lower standards in the importing countries.

It could be thought that EUROFER wants to make itself an advocate on behalf of owners of recycling plants in Europe. For they, and their associations, have been addressing this and similar problems for a long time, if, for example, it has been about the export of end-of-life vehicles declared as used cars, which then meant the local shredding plants lack the input material. Anyone with a level of competence can quickly comprehend that this motion is obviously intended to achieve something else.

The actual goal is, above all, to also stop the export of steel and non-ferrous metal scrap in order to create an artificial surplus supply of high quality recycling raw materials in Europe at artificially low prices for the commodity consumer. This pipe dream, however, by reason of current WTO rules, cannot be achieved simply through trade restrictions and tariffs. Therefore, the waste law, and in particular here, the waste shipment regulation, is being readily used in order to compel EU exporters to prove that in the future the same standards and techniques are used in the destination country as those in the EU.

This, of course, creates considerable hurdles, as concrete definitions and the proof of the required standards and techniques can seal off the market brilliantly, and make exports almost impossible. Once the larger plan has been decided upon, politicians can move on to the next problem without either bothering about the crucial details or even assessing the consequences of those decisions.

EUROFER envisages the following thumbscrews, or criteria, to determine the equivalence in the destination countries: Emissions on the level of the Best Available Techniques (BAT-AELs – Best Available Techniques Associated Emission Levels), climate change, waste legislation and the respect of the fundamental international rights on human, social and labour aspects in those importing countries.

Unfortunately, there are none too few EU parliamentarians who are quite delighted with this idea, when they consider the high standards in the EU, but also, above all, the undignified, inhuman manual waste sorting in Asia and Africa, or perhaps the ship breaking in India. Invariably, pictures immediately come to mind of children being trapped in forced labour. And quite by chance of course, the PR machinery of the lobbyists never tires in reminding political decision makers, at every opportunity, of these pictures and naming examples to reinforce these thoughts.

Logically, there is little to be read in the paper about the reasons for the export surplus of steel scrap from the EU. As well as a large supply because of the big anthropogenic scrap reserves, there has actually at times not been the relevant demand in the European steel industry, sometimes systematically or for technical reasons (blast furnaces), as the preference has been to import cheap ore or other metals from countries which have standards not always in compliance with the comparable ESG standards of the EU. The argument also always crops up about the quality of steel scrap not being high enough for it to be used in the flat steel production. Yet this does not hold true, as it is only a question of paying the right price to enable an appropriate processing. Up to now, no one has simply been prepared to pay the price.

What is, therefore, absolutely right and sensible for mixed and hazardous wastes, and should be regulated – which, by the way, now have an import ban imposed by countries such as China, Malaysia etc. – is absolutely wrong and counterproductive for high quality recycling raw materials, which are treated just as equally in this waste regime. Therefore, the EU must be called upon not to be manipulated for the wrong reasons. Mixed and hazardous wastes require export regulation, whereas high quality recycling raw materials definitely do not.

The distinction should also be made clear in the EU legislation that between the categories waste and product, there needs to be another, namely that of the high quality recycling raw material, or resource. Basically the high goals set by the EU can only be achieved if legislatures, executives and those from industry pull together as one. It seems not to be case so far here, if one industry wants to marginalise the other.

First new LME ring member after 14 years
After 14 years during which time the number of LME ring members had increasingly been decimated due to mergers, cost related changes to the less expensive membership category 2 and closures, the good news can now be announced that, according to Reuters, Sigma Broking Limited has applied to join the illustrious circle of ring members. At last, there is a new addition to the last remaining eight banks and brokers who want to continue, and have so far upheld, the floor trading on the LME which, after Covid-19, was reopened on the 6th September 2021.

Sigma Broking Ltd, according to its own information, is a privately owned brokerage company, founded in London in 2008, with futures trader, Matthew Kent, as its majority owner. Economically, the risk management and compliance platform NAVEX Global is also involved in the broker house through its English subsidiary. Sigma would like to offer its clients, such as hedge funds, an added value with the ring trade, and especially attract investors to the LME who are not yet active there. On the whole the focus of this broker house seems to be directed more on institutional investors than on real economy companies. With a turnover of 17 million pounds sterling for the financial year ending 31st May 2020, it does not, or at least not yet, appear to be one of the very big global players in this business.

LME (London Metal Exchange)

LME Official Close (3 month)
October 15, 2021
  Nickel (Ni) Copper (Cu) Aluminium (Al)  
Official Close
3 Mon.Ask
19,830.00
USD/mt
10,177.00
USD/mt
3,185.50
USD/mt
 
LME stocks in mt
  September 15, 2021 October 15, 2021 Delta in mt Delta in %
Nickel (Ni) 174,282 146,022 – 28,260 – 16.22
Copper (Cu) 234,000 181,400 – 52,600 – 22.48
Aluminium (Al) 1,299,900 1,118,325 – 181,575 – 13.97

Oryx Commodity News

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