Stainless Steel News and Nickel Prices, Molybdenum, Metal Pricing, Ferrochrome
Daily Nickel/Stainless Steel Briefing
- Nickel closed Wednesday’s trading session at
$12.63/lb
($27,850/tonne). Indicators at 5:45 am CST today show nickel trading around $.58/lb 
lower. Stockpiles of nickel stored in LME licensed warehouses fell on Wednesday and started today’s session just over the 53,400 tonne level. Shanghai nickel dropped overnight, to 203,530 y/t. And this morning, it appears LME traders are following suit. Once again, bullish traders were unable to hold the $28,000 tonne level, and this morning, LME nickel has slipped under $27,000/tonne. That’s the lowest it has traded since November. The nickel market is buzzing with comments on the LME report. We reviewed it and have posted some quotes from it below, as well as news that LME’s plan to reopen Asian trading has been denied. Russian stainless imports are up, while Tesla is rumored to be close to a deal with Indonesia to open a plant there. Stay safe out there and have a great “pre”- Friday. - Average price of LME traded cash nickel so far this month – $12.96/lb
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Reports
Shanghai Metals Market
Wednesday’s market review – Copper rises above $9,000 for first time since June – Copper prices rose above $9,000 a tonne on Wednesday for the first time since June on hopes that Chinese demand will rebound after the country removed its COVID-19 restrictions. – more
Exclusive: UK watchdog blocks LME plan to restart Asian hours nickel trade-sources – Britain’s financial watchdog is blocking the restart of London Metal Exchange nickel trade in Asian hours due to doubts about the LME’s ability to run an orderly market in that time zone, three sources with knowledge of the matter said. – more
COLUMN-Four shorts and a long at the core of LME nickel meltdown: Andy Home – Four big short position-holders and one financial player on the long side were at the core of the London Metal Exchange’s (LME) nickel meltdown last March. – more
Global stainless steel market to grow at CAGR of 3.38% in 2022-2027 – According to a report, the global stainless steel market was expected to grow at a compound annual growth rate (CAGR) of 3.38% during the period from 2022 to 2027. – more
Russia’s stainless steel imports up 11.4 percent in Dec from Nov – In December last year, Russia’s stainless steel imports totaled 30,100 mt, up by 11.4 percent compared to November, according to Russia-based SpetsStal Association. – more
Tesla nears deal to build production facilities in Indonesia – Bloomberg News – Tesla Inc is nearing a preliminary deal to build production facilities in Indonesia with a capacity of one million units, Bloomberg News reported on Wednesday, citing people familiar with the matter. – more
We went thru the report on the LME yesterday and post below some highlights we thought might be of interest to some. The link to the full report can be found in yesterday’s post.
Background of nickel market Nickel is a non-ferrous metal predominantly used in the manufacture of stainless steel, and non-ferrous alloys and plating (64% and 13% of demand respectively). Nickel is also a key component in certain battery types, which today accounts for 15% of nickel demand, and is expected to grow due to use in electric vehicle production. Nickel occurs in two ore types: sulphides and laterites, which are processed into a range of nickel products and intermediates. High purity Class 1 refined nickel such as briquettes and cathodes makes up 25% of supply, predominantly used in Europe and the Americas. Almost all the growth in nickel supply over the last 10 years has been in nickel pig iron (NPI), a type of ferronickel (FeNi) of between 3–14% purity, developed in China as an alternative to pure nickel in stainless steel production. Today, NPI accounts for 50% of worldwide nickel supply. Higher-purity FeNi alloys which contain around 35% nickel by mass account for another 11% of supply.Nickel matte, mixed hydroxide precipitate (MHP) and products that are involved in the battery supply chain, with th ir supply expected to grow in coming decades. Extraction of nickel is concentrated in Indonesia (48%), the Philippines (14%), and Russia (6%) – with Indonesia and the Philippines expected to remain the main sources of supply over the next decade. Refined nickel is stable and easily stored. However, other nickel products can present handling and storage challenges, ranging from being bulk commodities (NPI, FeNi) to hard to store powders (nickel sulphate and matte). The LME has had a physically settled nickel contract based on high purity nickel (>99.8%) since 1979. An LME traded nickel lot constitutes 6 metric tonnes, must be in cathode, pellet, briquette, or round form and be of an LME-approved brand. LME volume reports show that in 2021, nickel comprised 12% of the non-ferrous metal futures and options volume on the LME, compared to 42% for aluminium, 22% copper, and 16% for zinc.
(Friday March 6)
During the afternoon, the price reached close to $30,000/t, for the first time since 2008, with the final trade on the day executing at $29,130/t – a 7.6% increase from the opening price. That price move was large, but not unprecedented for a metal which has seen 13 days with price moves greater than 10% since 2002. Total margin calls generated (largely due to mark-to-market losses on LME nickel contracts2) were over $3.5bn – of which $2.6bn was called during the trading day. This was higher than the aggregate margin called in any day in the prior five months, and around three-and-a-half times the average level over the same period. The market closed for the weekend with significant short positions still in place and worsening liquidity. Holders of these positions had seen their available liquid financial resources depleted by large margin calls. While traded volume on March 4 was high, (17.6k lots traded on the 3month contract versus an average daily volume of around 11.3k lots in 2022) the bid-ask spread exceeded $250/t at times – compared to an average of $15/t for the prior six months. The price impact of a single buy order on LMEselect had begun to materially increase as well.
(Monday March 7 – day before market hits $100,000/tonne and is halted during fall)
By the close of trading, large short positions remained in the market– with the top 5 short-holders still holding 57k lots compared to 61k lots held by the top 5 short holders at the start of March 4. With prices having breached $50,000/t, the need to cover those shorts was even more pronounced. Member data analysed following the events indicates that of the missed OTC margin calls on March 7 and 8, over $2bn can be attributed to only two clients….. By the time LMEselect closed at 19:00, nickel was trading at $50,300/t, up 69% from open. Measured on a 20-year time frame, this was a twenty-five standard deviation price move, and over three times the largest price move it had ever experienced. This was in stark contrast to other major metals, including aluminium,which ended March 7 down 4.3%.
(Tuesday, March 8 – debacle day)
Following early morning media reports containing market rumours about member liquidity challenges and missed margin calls, the nickel price increased to over $100,000/t before retracing to around $80,000/t. … While volumes were not markedly higher than in other periods, incremental buy orders in the early morning had an enormous impact on the price. The average price impact of trades (see exhibit 12) between 05:30 and 06:00 was over $225/t, and bid-ask spreads on LMEselect reached $5,500/t. Almost a thousand lots traded at a price over $95,000/t between 06:00 and 06:26. The two main buyers that had been risk-reducing during the run-up, both stopped placing orders as the price crossed $100,000/t. Following this pause in short-covering, the price fell back to $80,010/t in 7 minutes, by 06:33. While net short covering through the morning only amounted to around 1,400 lots, the price impact was so high that prices accelerated even further. The price then traded around $80,000 until the session was suspended.
Two factors contributed to the price spiral:
• The LME’s price volatility controls did not control price volatility during the events. While the LME had static price bands, they did not ultimately stop the run-up in prices. Effective volatility controls could have provided market participants with time to reflect, secure financing, or seek ways to manage large positions off-exchange. • Eventually, market participants perceived that members may have been insufficiently robust to withstand the events. In particular, media reporting of market rumours overnight on March 7 claiming a member had failed to pay a margin call was seen by participants as adding to market pressure. Members in fact met margin calls of nearly $16bn over the period. Nonetheless, unique aspects of the LME Clear model – including mechanisms that support credit provision to clients – and the composition of the membership can give the perception that the clearing system is less robust than elsewhere. LME Group and market participants were not able to fully assess the risks associated with large short positions, which were fragmented across multiple counter parties and sometimes between OTC and on-exchange positions. ….. On average, the ten largest short positions were held across five members.
Amongst numerous recommendations
A principle followed is that LME Group is not directly responsible for prices on the exchange, which should be driven by market forces. Rather, the LME and LME Clear should have clear and transparent rules that they believe would prevent foreseeable causes of market distortions, recognising that these rules may influence the price but in a way that the market understands. The market as a whole was not well prepared to respond to large client defaults, particularly where they could impact OTC trades and multiple counterparties. This led to certain members seeking to cover their positions directly on the exchange, exhausting market liquidity and exacerbating liquidity withdrawal due to the uncertainty on what the total close-out interest was.
Other News
- Reuters The Day Ahead – pdf here
- Chinese fret over elderly as WHO warns of holiday COVID surge – more
Economic Stats and Prices (posted in Friday edition)
Why Stainless Steel
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Слава Україні! – more