Author Archives: Stuart Burns

The UK’s Serious Fraud Office (SFO) has gone public investigating charges that Sanjeev Gupta’s GFG Alliance (Gupta Family Group Alliance) holding company and subsidiaries, such as Liberty Steel, has been involved in fraud, fraudulent trading and money laundering.

As such, that has almost certainly put the end to refinancing efforts, at least for parts of the group in the UK.

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Fraud charges against GFG Alliance

Iakov Kalinin/Adobe Stock

The alleged fraud occurred between GFG and its main financial backer, failed finance firm Greensill Capital.

Greensill provided what is termed supply chain trade finance. Essentially, they paid GFG’s suppliers and funded the group prior to securing payment months later from GFG’s customers.

The SFO had been tracking GFG for a year, apparently. But after the Financial Times revealed in April a series of companies named on invoices that GFG sent to Greensill in exchange for cash had denied ever doing business with Gupta’s group. Gupta later told the Financial Times that one such company had been listed as a “prospective” customer. GFG provided financing on that basis, he said.

Interesting concept … what finance do you need for a “prospective” customer?

Greensill is said to be exposed to GFG to the tune of some $5 billion when it collapsed in March, leaving its backer Credit Suisse facing huge losses. Credit Suisse provided funding to Greensill on behalf of clients through a fund that collateralized such trade finance debts and yielded attractive return.

The Swiss bank in turn is seeking to wind up several Liberty Steel companies in an effort to recover money for its investors. Liberty went seeking £170 million of emergency loans from the British government.

However, the government declined. The government said the firm’s financial structure and activities were so opaque  it could not be confident the funds would not go tow businesses abroad.

Assurances have been given, though, that the government will step in if — or more likely, when — Liberty goes bust in order to protect the some 3,000 jobs and preserve the significant steel assets in the UK.

Next step for GFG Alliance

In previous posts we have questioned GFG and its subsidiaries’ opaque and complex company structures. We have also noted its extensive reliance on largely private enterprises to fund, at high interest rates, its acquisitions and working capital.

GFG did not just rely on Greensill, although it was by far the largest source of funds.

San Francisco-based fund White Oak Global Advisors has also been a sometimes backer and is reportedly still a creditor to the group. That could explain why it had seemed keen, at least up to the point the SFO investigation announcement, to explore refinancing terms with GFG. Its motivation, in part, no doubt, came with the goal of getting back what GFG owed it.

GFG’s empire will almost certainly break up. Some parts, such as the aluminum smelter at Fort William in Scotland have been thrown something of a lifeline by the Scottish parliament. Both the Scottish smelter and ALVANCE Aluminium Dunkerque, Europe’s largest smelter, are probably trading profitably in today’s high aluminum metal price environment — at least for now.

Wait and see

Liberty’s Hayange steel mill in Moselle, France, is an attractive asset, as it manufactures a wide range of steel rails for nationally significant infrastructure clients, including France’s national rail operator SNCF and RATP, the operator of Paris’ metro system. Paris is unlikely to let either ALVANCE Aluminium or the Hayange mill fail.

However, like the UK government, it will likely wait to see how the group fares before stepping in with the administrators.

For now, GFG Alliance and Liberty limp on, but time and options are fast running out. The fact the group’s financing model and company structure has led to its demise only goes to vindicate many who had criticized the group despite its earlier hubris and apparent success.

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The Democratic Republic of Congo is undertaking a huge, and potentially significant, experiment,  Reuters reported recently.

The effort aims to clean up the DRC’s appalling reputational image as a supplier tainted with all manner of human rights abuses and lack of supply chain transparency. Reuters reports the state, in the guise of a new enterprise called the Enterprise Generale du Cobalt (EGC), aims to assume total control of the artisanal cobalt mining sector. That includes monopoly rights to buy all production.

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Congo and the artisanal cobalt mining sector

map of Africa with Democratic Republic of the Congo highlighted

michal812/Adobe Stock

The government is working with PACT, a non-governmental organization that works globally to improve the lot of artisanal miners (among other underrepresented communities and minorities).

The model has been piloted at the Mutoshi mine. With PACT’s assistance, some 5,000 artisanal miners have been integrated into a formal structure.

Creating a sustainable and transparent supply chain would certainly remove a barrier to the DRC’s acceptability as a long-term supply source for the world’s major corporations. Ethics of supply chain sustainability is becoming an increasingly critical issue.

There are reputable cobalt suppliers from the DRC, of course.

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Copper prices have risen relentlessly from $4,371 per ton in March last year to over $10,450/ton now.

Stories of a new supercycle put out by the likes of Goldman Sachs may have helped. However,  so have massive imports by China over the last year.

copper mine

Charles/Adobe Stock

Reuters reports physical purchases by China, both commercial and state, hit 4.4 million tons last year, up from 1.2 million in 2019. Such volumes have fed the narrative that supplies are going to become constrained. In turn, that has encouraged investor — particularly Chinese investor — buying.

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Copper prices and long positions

But the price and those investors look like they may be reappraising direction.

Net long positions, Reuters reports, have slumped on the SHFE to the lowest level since October 2020. Meanwhile, LME net long positions have retrenched to a more normal 43% from a peak at 62% in February.

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Iron ore prices’ relentless rise this year went into overdrive Monday, hitting a +10% limit up and prompting the Dalian Commodity Exchange to raise trading limits and margin requirements in an effort to calm speculation.

Separately, the Shanghai Futures Exchange said it would set fees for closing positions on its steel rebar and hot-rolled steel coil futures contracts at 0.01% of the total transaction value. Those transactions had previously been free.

bulk cargo iron ore


Meanwhile, on the Singapore Exchange, the June contract for iron ore leaped 10.3% to a record $226.25 per ton.

Despite fears this would squeeze mill margins, sales prices moved in tandem. The South China Morning Post reported nearly 100 Chinese steelmakers adjusted their semi-finished steel prices sharply upwards yesterday to compensate.

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Strong iron ore demand

Iron ore prices have been rising on the back of strong demand. Increases of this magnitude and at this speed could not occur in a weaker demand environment.

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silver price

Olivier Le Moal/Adobe Stock

The green agenda has lifted prices across the metals sector.

To what extent it has driven physical demand rather than sentiment-driven investor activity — in the form of exchange-traded fund (ETF) buying, stockpiling or exchange position building — is debatable. It’s more of the latter than the former, we would suggest, as the main physical driver for metals remains electrification in transport. As a percentage of the whole, that remains relatively small.

But one important metal in the sector that has yet to see the same support this year is silver.

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Silver price trends

After hitting a low of $24/oz back in early April, the silver price has seen a steady appreciation to just under $27.50/oz today.

However, it has still not hit the artificial eight-year high seen in January, when it reached nearly $30/oz on the back of frenzied retail investors’ demand.

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Some of the merchant banks would have us believe we are in the grip of another supercycle.

Certainly, the relentless recovery in commodity prices following last year’s lows appears graphically like a repeat of the relentless rise in prices during the last supercycle in the first part of this century.

commodities graphic


During that supercycle, support came from a gradually depreciating dollar. However, it was driven mainly by a relentless historic rise in demand from China and the belief that where China led, the other BRICS nations would follow.

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Supercycle or no supercycle

Prices of iron ore, oil, and base metals (such as copper, aluminum and tin) have all been rising relentlessly on the back of a marketwide embrace of risk-on sentiment.

Prices have suffered — or enjoyed, depending on your position as producer or consumer — a perfect storm of factors.

Vaccine rollouts and, with the tragic exceptions of India and Brazil, falling COVID-19 infection rates around the world have fueled positive sentiment among investors chasing better yields.

The constrained global logistics market is pushing costs up and creating shortages across multiple supply chains. That is further incentivizing restocking such that shortages become a self-fulfilling prophecy and manufacturer lead times extend.

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Nickel prices and, as a result, stainless surcharges, remain in the doldrums this month, recovering only slightly from last month’s sharp sell-off.

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Nickel prices drop in March

nickel price

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Nickel’s bull story took a hit at the beginning of March by announcements from China’s Tsingshan Group. The firm said it intended to produce battery-grade material from nickel matte, undermining the market’s electric vehicle (EV) narrative.

That is last month’s news. Reuters confirmed the move would effectively close the processing gap between the sort of nickel used by the stainless steel industry and that used for lithium-ion battery production. That undermines the perception that battery-grade nickel is a constrained market facing a looming wall of demand.

Yet, EV demand has always been part of the future, rather than the present.

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The prospect of buying an electric vehicle (EV) may fill you with anxiety.

That is, range anxiety, charging point anxiety,  reliability anxiety and resale anxiety.

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Sales rise despite electric vehicle anxieties

electric vehicle charging

kinwun/Adobe Stock

Tesla’s vehicles were ranked at the bottom for reliability in a recent customer poll, scoring a miserable two stars out of a potential five.

So far, EV resales have held up relatively well. However, anxiety remains regarding a significant technological breakthrough that would make used models “obsolete.”

Such anxiety, however, is not the point. Sufficient among us are taking the plunge, so much so that EV sales are skyrocketing.

OK, skyrocketing from a low base. But in percentage terms, sales are rising faster than for any other sector.

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Brussels must feel a little like the Dutch boy with his finger in the dike when it comes to emissions.

No sooner do you create a solution to one problem – costing carbon dioxide emissions – than you create another – putting your domestic industries at a global disadvantage.

The Financial Times reported on calls by European industrial groups for the EU to introduce a carbon border tax. Rapidly rising prices for CO2 allowances raise the cost for the most-polluting industries far above any other region.

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EU’s Emissions Trading System aims to encourage reduction in emissions


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According to the Financial Times, carbon prices in the EU’s flagship Emissions Trading System (ETS), a cornerstone of the bloc’s ambitious new target to slash emissions 55% by 2030, are within touching distance of €50 a metric ton. That’s more than double their pre-pandemic level.

The ETS is intended to encourage investment in technologies that reduce carbon emissions by placing a financial burden on producers who simply maintain their existing level of emissions. The EU grants allowances to polluters and allows them to trade them in order to allow a commercial price to develop – if you like letting the market decide what the balance is between paying to pollute and investing more to avoid the cost and pollute less.

The problem appears to be that anticipation among traders and commercial buyers is supplies will tighten as the available allowances will shrink over time.

The result? Rising prices for those allowances left, piling pressure on the most polluting firms.

Competition fears

Rises this year have prompted Tata Steel to place a €12 ($14.40) per metric ton surcharge on its European steel. The fear is further increases will make European producers increasingly less competitive against imports from countries with no such taxation system.

The post reports estimates made by steel producers that the EU carbon price is now costing them approximately $95 ($114) per metric ton of steel produced. (The production of one ton, on average, emits two tons of CO2 the post suggests.

That equates to almost 10% of the current steel price near €1,000 ($1,200) a metric ton.

Producers go on to suggest the estimated annual hit to the EU steel sector from having to buy carbon allowances from the market could hit €3 billion this year. Steel producers would have to pay to buy shortfalls in their allowances from the open market.

Pressure builds

The EU was due to unveil proposals for a carbon adjustment border tax in June. However, its implementation is not likely before 2023, at the earliest. Now, pressure is building to move up implementation to later this year.

The proposed border tax mechanism is initially set to target limited goods. Those include steel, cement, power generation and some chemicals. The mechanism will target goods imported from non-EU countries that do not have equivalent carbon pricing or emissions targets.

Ultimately, though, it could be extended to any carbon-intensive product. That includes other metals, like aluminum, zinc and ferro alloys (like FeMn and FeCr).

Distorted market

Letting the market decide the cost of polluting has merit. Price discovery in that way is likely to be more efficient than government-mandated prices.

However, the problem is the EU controls the provision of the allowances, making it a rigged market. It’s not an intentionally rigged market but one distorted by decisions made in Brussels on the size and allocation of allowances.

Steel suppliers selling into Europe and buyers from outside the bloc of components containing a significant steel content will therefore see the EU become less attractive in the run-up to the middle of the decade.

That is, unless or until similar carbon pricing policies are adopted elsewhere.

There is often a price to pay for being in the vanguard.

Volatility is the name of the game. Do you have a steel buying strategy that can handle the ups and downs?

supply chain chart

cacaroot/Adobe Stock

Metal prices have been rising this year, in part because of a rapid recovery in consumer spending and manufacturing following last year’s lockdowns. China led the recovery, but the recoveries have strengthened in North America and, to a lesser extent, Europe.

As vaccines have rolled out, particularly in the US, sentiment has improved. Consumers have begun to spend some of that US $5.4 trillion — estimated by the Financial Times — of pent-up savings amassed during the lockdowns.

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Supply chain woes

However, constrained supply is also a major driver of metal prices.

In some cases, such as copper and zinc, this has been from lockdowns in major resource countries like Peru. In addition, tariff barriers have further squeezed consumers’ supply options.

The US added anti-dumping duties on some 18 aluminum sheet supplying countries earlier this year. Meanwhile, the European Union added aluminum flat rolled countervailing duties this year. Those added to those already in place for extrusions from last year on China. As a result, the moves significantly tightened aluminum supplies into the European market.

Further pressure has come from global logistics constraints and cost increases. That has come principally on the Asia to North America and Asia to European shipping routes. Routes have seen shipping delays, container shortages and a near tripling of freight rates over the last 12 months.

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