Commodities Corner: That’s All, Volks!

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There’s a major hiccup for the booming electric vehicle, green metals (and especially lithium) sectors with the news that unions and rich insiders, plus a state government in Germany have forced the departure of Volkswagen CEO Herbert Diess.

Five days after he and the German government shook hands on a major new battery factory in Germany and VW kicked off its 20-billion-euro battery business called PowerCo, Diess’s surprise departure came out of the blue on Friday.

Under Diess, VW charged into the EV world – he did deals with Perth-based Vulcan Energy of Perth which operates in Germany. Other deals have been with Ganfeng, the big Chinese lithium group (it is also big in Australia). It also has deals with Umicore of Belgium and a US start up.

Vulcan Energy’s ASX-listed shares jumped 24% last week but that was before the news of the departure of the VW CEO broke overnight Friday.

The reaction today on the ASX could well be very different until the fate of the German car giant’s electrification push is confirmed.

Targets for millions of new EVs by mid-decade and then 2030, a rapidly expanding battery business as well as technology was announced and chasing and passing Tesla was the new yardstick, much to the consternation of many in Germany.

And that strategy might be done at a far slower pace that under VW insider Oliver Blume, who will replace Diess.

Plume is currently the CEO of Volkswagen subsidiary Porsche and will succeed Diess in September and media reports from Europe say the rich Porsche and Piech families support him (Diess came from BMW and was an ‘outsider’ at VW) because of his long service for VW, especially in conventionally-powered vehicles.

Blume is seen as less abrasive, a traditionalist rather than a visionary and his appointment is being seen as a return to basics, and less ambitious visions about turning the automaker into a technology company, with electrification downgraded.

Forgotten in the change is that VW traditionalists and their secretive cover ups got the car giant into the “dieselgate” scandal that still impacts the company’s reputation and that of German business.

The automaker didn’t provide a reason for Diess’ departure but the rumour mills did, as especially he had three years to go on his contract.

Diess, a former BMW executive, took over at Volkswagen four years ago when the German automaker was in crisis after “dieselgate”, with a dodgy corporate culture and a feeling that it and Germany were being left behind by China and other faster adapting countries.

Diess led the company past the scandal into a new era, driving the big investments in electric vehicles with a goal of selling millions of EVs a year by mid-decade.

That upset the unions, the insiders on the board the government of Lower Saxony (which owns 20%) who thought he was leaving the old internal combustion life behind, and ignoring history.

Hours before the announcement was made late Friday afternoon in Germany, Diess used his social media channels to thank VW employees for their work in the first half of the year and wishing them a good vacation. He made no mention of his impending departure.

The 20-person supervisory board, including 10 union members, representatives of the Lower Saxony government and members of the Porsche and Piech families who are major VW shareholders voted unanimously to fire Diess.

Reuters reported that the shareholders were concerned that Diess was not delivering results fast enough from his multi-billion-euro investments in EVs and software development. Other reports suggest that the unions were not happy with those investments and Diess’s desire to cut employee numbers to lower costs.

But the stockmarket performance of VW shares since Diess took over in 2018, has been flat, and the company’s shares are down more than 30% so far this year – which is understandable given the enormous disruption caused by the Russian invasion of Ukraine and the huge jump in petrol and oil costs

NW Volkswagen’s board has opted to replace Diess with Oliver Blume and Reuters reports that some observers expect that choice signals a less ambitious vision about turning the automaker into a technology company.

And if that happens it will mean the world’s second biggest carmaker joins the biggest in Toyota in becoming less enthusiastic about EVs (Toyota has billions invested in hybrid technologies).

This will play into the hands of Tesla and the emerging Chinese EV companies, led by BYD and battery giant, CATL.

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In commodities oil prices eased, copper and iron ore edged higher but grains sold off after Russia, Ukraine and Turkey did a deal that might free up millions of tonnes of wheat and oilseeds (such as sunflower) for export.

US wheat futures fell nearly 6% on Friday to their lowest level since February after Russia, Turkey and Ukraine agreed to reopen Ukrainian Black Sea ports for grain exports.

Wheat peaked at $US1,363 a bushel in early March after the Russian invasion of Ukraine.

Chicago Board of Trade September wheat fell 47.25 cents to $US7.59 per bushel after dipping to $US7.54, the contract’s lowest since early February and the third week in a row prices have fallen sharply.

US Corn fell almost 2% on the news but soybean futures rose rebounding from multi-month lows. December corn ended down 9.25 cents at $US5.6425 a bushel while November soybeans rose 14.25 cents to finish at $13.1575, bouncing after falling to $US12.8850 a bushel, a six-month low.

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US crude prices ended under $US95 a barrel for the first time since April on Friday (July 22) after the European Union (EU) said it would allow Russian state-owned companies to ship oil to third countries under an adjustment of sanctions agreed by member states last week.

This week sees another rate rise from the US Federal Reserve and there are now growing fears these increases (a rise of 0.75% is expected) will trigger a recession in the US and a slide in oil demand.

US West Texas Intermediate crude (WTI) settled $US$1.65 or 1.7% lower at $US94.70 a barrel, while global marker crude, Brent dipped 0.6% or 66 US cents to $US103.20.

WTI ended down 2.5% and lower for the third straight week, pummelled over the past 2 sessions after data showed that US petrol demand had dropped nearly 8% from a year earlier in the midst of the peak summer driving season, thanks to record retail prices.

Brent fell 2.35%.

Libya said it would be boosting crude production in the next two weeks from more than 800,000 barrels a day to 1.2 million barrels by mid-August.

The number of active US oil rigs remained steady at 599 last week, according to data from energy services firm Baker Hughes. That seems to be approaching a peak.

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Copper steadied around $US7,370 a tonne on the LME and edged up on Comex in New York to finish at $US322 a pound.

That was up 0.7% for the day and 2.4% for the week – the first weekly move for some time.

Aluminium gained ground at $US2,430 a tonne while Comex gold fell below $US1,700 mark before recovering on Friday to settle at $US1,727.40 and dipped in afterhours trading to end the week at $US1,725.30 an ounce.

And iron ore prices rose back over the $US100 a tonne last week, despite a fair bit of bad news about – reports of weak Chinese demand, more on China’s plans for a central buying group offset by news that Vale, the big Brazilian producer, has cut its 2022 output by up to 10 million tonnes, perhaps a bit more.

The SGX futures price for 62% fe fines delivered to northern China ended at $US10455 a tonne on Friday – ujp from $US96.60 the week before- a rise of more than 8%.