Inox MMI continues to decline this month. Additionally, nickel prices continue to show weakness with no apparent bullish anticipation from market participants. As the overall industrial metals market fell, nickel prices followed suit. Additionally, volumes remain below pre-LME shutdown levels, which will continue to support a slow price move.
The Monthly Stainless Metals Index (MMI) fell 9.55% from June to July.
According to a recent Bloomberg report, the man behind the historic nickel squeeze in March has walked away from the crisis with an estimated loss of $1 billion. For most, that number seems almost unimaginable. However, that’s a far cry from the more than $10 billion loss it suffered when nickel prices surged above $100,000 a ton. Instead, Xiang Guangda, owner of mining and steel company Tsingshan Holding Group, managed to liquidate almost all of his short positions nearly four months later.
Guangda’s ability to exit with almost all of his assets intact and, for him, a manageable loss, was helped in particular by a few big players. For example, when nickel prices spiked, the LME halted trading. The move gave Guangda time to strike a deal with a dozen banks and brokers tied to its short position. Perhaps even more crucial (and controversial), the LME canceled several trades. This brought prices at the previous day’s close down to just under $50,000. However, Guangda did not actually start closing its short positions when the exchange reopened. Instead, the deal he struck allowed him to wait until prices fell to more acceptable levels, capping his net losses and allowing him to remain a billionaire.
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Dramatic damage to nickel prices could last for months or even years
While Guangda appears “in the clear”, the damage from the compression has extended far beyond the actual events. On the one hand, the LME’s reputation seems seriously, and perhaps permanently, damaged. Of course, the exchange was caught between a rock and a hard place. That said, he chose a side. And that will always leave the other side angry.
Naturally, the exchange felt incredible pressure amid the chaos. According to LME Chairman Gay Huey Evans, “Had the LME not made these decisions, the effect on the nickel market would have been extremely detrimental and felt across the entire nickel value chain investor community.” . Although this has been denied, speculation persists that Beijing may have influenced LME’s parent company, Hong Kong Exchanges and Clearing Limited.
As the winner chosen by the LME walks away, the losers remain furious. On the one hand, the stock market has found itself the target of numerous lawsuits and investigations. On the other hand, the crisis triggered a withdrawal from the LME due to mistrust and risk aversion among market participants. Open interest on metals has been trending lower since March. Its nickel contract, while still functional, is the most damaged, with trading volumes about half of what they were.
Beyond the LME, the broader nickel market continues to struggle to find fair value for trade hedges. This is largely due to low volumes hurting liquidity and widening spreads. In the absence of a CME contract, the Indian MCX and the Chinese SHFE are the only viable alternatives. Both, however, are denominated in currencies that are not freely convertible. The SHFE appears as the obvious beneficiary, but not necessarily to a substantial extent. Instead, the market remains shaken. In MetalMiner’s view, the real fallout from the nickel crisis will likely last for months, if not years.
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July NAS fuel surcharge increases to 51%
North American Steel’s fuel surcharge hit a new record high in July as it climbed for the second consecutive month to 51% from 50% in June. The figure has more than doubled since May 2021 amid record energy prices. The surcharge in the first seven months of 2022 is now 71% higher than it was in the same period of 2021.
Fortunately, fuel prices should see some relief in the near future. In fact, oil fell 2% last week to hit a 12-week low at just under $100 a barrel. That said, the only reason for this sudden drop is heightened concern about a global recession. If this imminent threat materializes, there could be worse to fear than fuel surcharges.
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Real metal prices and trends
- Allegheny Ludlum 304 stainless steel surcharge fell 6.59% to $1.70 a pound on July 1. Meanwhile, the Allegheny Ludlum 316 surcharge fell 7.76% to $2.26 per pound.
- China’s primary nickel fell 18.8% to $27,236 per metric ton.
- Three-month nickel at the LME fell 13.49% to $8,245 per metric ton.
- Indian primary nickel rose 14.72% to $8.63 per kilogram.