6 January 2023 -After nickel on the London Metal Exchange (LME) had risen again by more than 17% from the end of November 2022 to 3 January 2023, the price had fallen on Wednesday and Thursday last week and had already turned positive again by more than 3% on Friday. High volatility has not only been a rarity for the battery and stainless steel raw material since March 2022 and the failed Tsingshan deal. And now, too, forces seem to have deliberately tried to influence prices again. An analysis.
- Production capacity is not the same as production volume
- Lack of raw materials: plants cannot operate at full capacity
- Russian nickel taken out of the equation?
- Dispute over raw materials comes to a head
- China secures raw materials: Nickel export tax of 40%
Chinese nickel manipulation?
Attentive observers have noticed repeatedly launched press releases on supposed key events in recent years. Be it in February/March 2021 or even at the beginning of 2022 – which, as we know, went off the rails.
Currently, the Tsingshan Group is once again beset by problems. One company in the group, the battery manufacturer Ruipu Lanjun Energy Co., Ltd. (Ruipu Lanjun), is seeking an IPO and submitted a prospectus to the Hong Kong Stock Exchange in December. However, analysts say the company is facing some significant difficulties.
Battery maker runs at less than 30% capacity
Ruipu Lanjun’s main products are lithium-ion-based energy storage devices. Currently, the company manages to run at just 30% of its production capacity. The background is the high raw material prices for lithium, cobalt and, it is not hard to guess, nickel.
Raw material prices at record levels
The price of cobalt has halfway returned to normal since its record high in April 2022, but it is still at an elevated level. The price of lithium, on the other hand, has increased more than sixfold since the beginning of 2021. It currently stands at around $425,000 per tonne.
Nickel content a serious cost factor
And then there is nickel, which accounts for up to 80% of the weight of the raw material mix in current storage batteries due to its high energy density. With an average price of more than $25,000 per tonne in 2022, this is a cost factor that should not be underestimated. Not only for Chinese battery manufacturers, but also for European and American companies.
Press releases always work?
News quickly reappears in the media that had already worked in a different way, e.g. in 2021. For example, the the start of operations of a Tsingshan project for the galvanic separation of nickel in China. And which the trader Big Short, who is connected to the Tsingshan group, had already exploited several times for his own purposes.
Anomalies in the trade in nickel
If one looks at the last few years in nickel trading (period 2008 to 2022), one finds “surprisingly” often a slump in nickel prices in the first three months, especially in March. The last major slump in prices at the end of February/beginning of March 2021 could also be attributed to a press release by the Tsingshan Group, as already mentioned. And in March 2022, the Tsingshan trader Big Short also attempted to crash prices – which failed miserably at the time and placed a heavy financial burden on the group.
And the groundhog greets us every year
Even if the “event” currently blamed for the dip in the nickel price indicates a capacity of 1,500 MT per month, the actual utilisation is likely to be significantly lower. If battery manufacturer Ruipu Lanjun is used as a comparison, a maximum of 500 MT per month can be expected at the “unnamed” Tsingshan offshoot – if at all.
Tsingshan, even though the group itself is one of the larger nickel producers and consumers, has in the past always had a vital interest in depressing nickel prices, being able to buy cheaply and then let prices rise again.
Who else has an interest in depressing nickel?
Even organisations like the International Nickel Study Group (INSG) show every now and then where they would like to see prices go. Forecasts and reports are prepared or corrected, spread via press releases and taken up by the press more or less without comment or content.
The actual reports are then offered for sale for a lot of money. The market reacts anyway – even if its own overcapacities, now reduced by 40% and previously forecast, are hushed up. Or a large nickel producer does not even manage to exceed its production volumes from 2020, but this is presented as an expansion of capacities.
Production capacity is not the same as production volume
There is a huge difference between what could be produced and what is actually produced. EU steel producers, for example, are masters at hiding the fact that they have an actual production capacity of 250 million tonnes per year. Instead, they prefer to point out that they only produce 150 million tonnes per year.
This means that when a project comes on stream, especially if it is massively subsidised by the state, it can also immediately produce at full capacity. Or will the necessary raw materials ever be available in sufficient quantities.
Lack of raw materials: plants cannot operate at full capacity
While the EU steel producers are sitting on the second largest overcapacities in the world and cannot fully utilise them economically, the nickel producers, on the other hand, are sitting on plants that cannot be sufficiently supplied with raw materials. Nickel is scarce and only available in limited quantities.
It therefore seems to have become common practice for some market participants to move commodity prices in one direction or another with deliberately placed nuggets of information, and not just since yesterday.
Governments take a firm look at raw materials
Politicians have long since recognised the strategic component in raw materials such as nickel and lithium. Not only for battery production, but also for stainless steel. Especially the European Union, which has no or hardly any nickel reserves of its own and is urgently dependent on imports.
Russian nickel taken out of the equation?
With the war between Russia and Ukraine, Russia has also fallen into disrepute as an important supplier of nickel and has landed on the voluntary sanctions list of many companies.
In addition, the Russian nickel producer Norilsk Nickel, which has been hit by accidents, seems to want or even have to reduce its output by at least 10% for 2023. Nornickel had already struggled to reach its 2020 capacities.
With the Western sanctions against Russia, it may have become more difficult for the mining giant to maintain or even expand its existing production.
Dispute over raw materials comes to a head
The dispute between the EU and Indonesia over the raw materials export ban on nickel before the World Trade Organisation (WTO) is also deadlocked. At the latest since Indonesia filed an appeal against the ruling of the WTO’s Dispute Settlement Body (DSB) at the end of 2022. A solution here is not in sight for the foreseeable future.
China secures raw materials: Nickel export tax of 40%
China is also trying to keep its important raw material reserves in the country. With the recent introduction of export taxes on steel and stainless steel scrap, aluminium, tin, copper, ferro-alloys and nickel products of up to 50%, a highly visible line has been drawn here on strategic raw materials. Many Chinese nickel products, for example, were subject to an export tax of 40%.
LME loses chair
The resignation of LME Chair Gay Huey Evans, announced on Thursday, 5 January 2023, is likely to cause further speculation. The London Metal Exchange has been struggling to bring order to the self-inflicted chaos in the nickel market since March 2022. At the same time, the commodity exchange is facing several lawsuits and investigations from the British authorities.
Much criticised intransparency of the commodity exchange
The LME’s lack of transparency is generally viewed critically by regulators. Enquiries as to whether the resignation of Gay Huey Evans was related to the March event were not commented on by the LME, according to media reports. A regulator referred the matter to the LME.
This also leaves open the question of whether this could have been a pawn or a lucrative deal that ultimately led to this resignation.
Conclusion: Quick buying spree before prices rise again
All in all, the picture that emerges for the nickel is that some parties are frantically trying to push down the price before it reaches new heights that are not even foreseeable at the moment. A quick shopping spree before the discount battle is finally over. Happy New Year.
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