A new act in the nickel drama

Energodigest | 30 March 2023
As the global market struggles to shrug off the effects of the nickel crisis, which broke out on the London Metal Exchange (LME) last March and is still sending shockwaves through the industry, more bad news has come to the fore.

This time, problems started after Trafigura Group said it had fallen victim to what it believes to be a systematic fraud. This major commodity trader is now facing $577 million in losses after discovering metal cargoes it bought didn’t contain the nickel they were supposed to[1], while its reputation has been badly tarnished.

The baton was then passed to the LME, which ended up back in the limelight, rocked by a new nickel scandal. Instead of nickel inventories worth about $1.3 million, the embattled exchange has discovered bags of stones at its warehouse in Rotterdam,[2] which has delivered another blow to its reputation. Staggered by this revelation, it had to delay by one week the restart of Asian trading, suspended since March 2022.[3] And all these troubles have come amid the news that the UK authorities have opened an investigation into the LME focusing on potential misconduct during last year’s nickel squeeze.[4]

Worried about non-conforming material, LME nickel buyers are rolling their positions forward by selling nearby contracts and buying longer-dated ones,[5] with a discount for the LME’s cash against a three-month contract reaching $362 a tonne, the highest level since December 2007. To reassure traders, the LME said it had checked its nickel bags and hadn’t found any more stones.[6] Now it will have to work hard to rebuild its reputation as a trusted trading house, as competitors are on the lookout to seize every opportunity.[7]

Though nickel inventories on the LME have plunged to an all-time low (see Fig. 1), there has been no panic buying yet. More so, a tonne of nickel has lost 23.4% in value in the first three months of 2023 and is now trading at less than $24,000 (see Fig. 2). This is down to a number of factors, including unstable demand for nickel from European manufacturers of stainless steel, and the situation in China, with supply there exceeding demand by far. Demand from EV producers is not particularly brilliant either, as they struggle to raise sales by bringing prices down.[8]
Amid a barrage of negativity, the nickel market is set to remain in disarray for quite a while. Hopefully, the storms will eventually subside and today’s woes will become a thing of the past.
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