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Nickel futures up almost 30% since mid-July 2022
Nickel futures up almost 30% since mid-July 2022

1 August 2022 – Nickel prices have been rising again for a fortnight. On the LME already by about 30%. On the SHFE even more. The new state-owned commodity giant China Mineral Resources Group is to consolidate China’s purchasing power on the global commodity markets with a starting capital of approx. 3 billion USD – first nations are already showing concern. And the first large shipments of Russian steel to India are causing buyers new concerns about Western sanctions.

Nickel futures up almost 30% since mid-July 2022

What we had predicted on 15 July has then come true in a new nickel rally in the last two weeks. The price of nickel on the European LME has risen by almost 30% since 15 July, if we take into account the current level as of today, Monday.

On the SHFE, the nickel price has even risen by almost 32% since mid-July. Even though nickel remains volatile, this shows a clear trend – not only on the European commodity exchange LME, but also on the SHFE.

At the same time, inventories on the LME and SHFE have fallen to historic lows. While the LME continues to keep an eye on the development of Russian nickel products traded on the LME, there is still a risk that sanctions could be imposed on Russia.

More Chinese purchasing power

China has founded a new state-owned company for the purchase of raw materials. The start-up can look forward to a capital injection of about 3 billion USD and is expected to provide China’s hunger for raw materials with significantly more purchasing power in the future. Commodity-exporting countries, such as Australia, already see this as a threat directed at them. And not only with regard to iron ore.

Ensuring the supply of important mineral resources

“The launch of the commodity giant is of great significance in enhancing China’s ability to ensure the supply of key mineral resources, secure supply chains and promote high-quality development,” Chinese state media say.

China the world’s largest consumer of iron ore

The launch of China Mineral Resources Group at the end of July 2022 confirmed a long-rumoured plan to create a centrally managed state giant that would have more influence on commodity prices by leveraging China’s strength as the world’s largest consumer of iron ore, for example.

Iron ore in particular is a commodity that plays a key role in the Chinese economy. The Chinese economy is heavily dependent on iron ore imports. China gets 64.7 per cent of its iron ore from imports, China Merchants Securities said in a research report in April.

Cartel among iron ore producers?

The background to this formation, however, is also that China wants to counter a possible manufacturing cartel among the world’s largest iron ore producers. 80% of China’s iron ore imports recently came from these four big commodity companies.

What comes next?

Currently, the new giant is supposed to take on the historic task of improving the negotiating position of the Chinese steel industry, according to government statements. But it is to be expected that China will want to expand its purchasing power for raw materials in general. The demand is there and the resources are limited. The establishment of the China Mineral Resources Group is likely to put some nations and buyers of raw materials outside China in a tight spot.

Sanctioned Russian steel now also in India

Indian media reports that the first large shipments (about 28,000 tonnes) of Russian steel affected by Western sanctions have now arrived in India. Previously, there had also been reports from other regions of the world, e.g. China and Taiwan, that imports of steel originating in Russia had increased significantly.

Western steel buyers worried

This is particularly worrying for Western buyers, who may be purchasing sanctioned material with their orders from, for example, India and China. The European Union’s regulations with regard to sanctioned Russian steel products are very strict. Not only is the circumvention of sanctions punishable by criminal prosecution, but even the negligent circumvention of sanctions can be punished with prison sentences in Europe.

EU sanctions warn against attempts to circumvent sanctions

The European Union’s guidelines on sanctions against Russia also contain warnings that importers in particular must watch out for circumvention attempts. And not to enrich their orders with products that have been secretly labelled with false origin information and actually come from Russia.

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