Author Archives: The MetalMiner Team

The London Metal Exchange (LME) halted nickel trading effective 8:15 a.m. London time today.

nickel price

leszekglasner/Adobe Stock

The contract will remain suspended for the remainder of today. According to the LME, the price movement in Asia overnight combined with the situation between Russia and Ukraine led to the decision to halt trading.

Furthermore, the LME said it would examine trades made prior to the close, which could result in a “reversal or adjustment.”

The exchange said the suspension could last for multiple days. The LME will work with relevant parties to manage upcoming deliveries.

Keep up to date on nickel price movements in upcoming installments of the MetalMiner weekly newsletter. 

A nickel short squeeze

The nickel market saw a short squeeze, not driven by market fundamentals. 

LME nickel trading chart for March 8

The LME suspended nickel trading March 8 as a result of a short squeeze and skyrocketing prices. Source: TradingView

A short squeeze refers to when bears/short sellers begin to cover their positions as they lose more money than they can afford. They “buy to close” their positions. That triggers a chain reaction of buy orders, causing prices to skyrocket.

Nickel prices have spiked parabolically — defined as tremendous strength in a few seconds or minutes — due to the recent short squeeze caused by the Russian invasion of Ukraine.

As prices climbed, the exchange began margin calling the short sellers. Prices began to rise as part of a chain reaction of sell orders being closed.

Nickel prices quickly touched over $100,000/mt as nickel broke out of its technical structure. New buyers and short sellers engaged in panic selling, creating a stunning move. 

This month’s Stainless MMI report will include additional analysis of nickel and stainless markets

Short and long

What we are seeing is interplay between two large position holders.

The first holds a long position, accounting for 50-70% of the market. The other is short and has been trying to close positions as the market rose due to rising concerns over Russian supplies yesterday.

As noted, all the short sellers got caught. Their margin calls will run into thousands of pounds per ton. Hence, the LME closed the market to allow a cooling-off period.

We could see sell-offs in other metals and/or markets as short sellers raise capital to meet the margin calls. The nickel price rise will probably prove short-lived and will fall back when trading resumes. However, it might not fall back to the prior closing price.

Stainless surcharges will increase to the extent the March average is raised by the current elevated nickel price. 

If nickel consumers needed any encouragement to diversify to alternative alloying elements, they have it (stainless, batteries, plating, alloying).

Nickel prices may come down from the over $100,000/mt peak. However, consumers will be seriously rattled by what’s happened over the threat to Russian supplies.

Although the West issued a new round of sanctions late on Sunday, it remains unclear what effect they will have. The new sanctions, including the prohibition of Russia flying over European airspace, as well as the funding of arms for Ukraine, came on Sunday. Nobody at MetalMiner believed the earlier sanctions through Friday would put an end to the invasion or cause Russia to turnaround and head back home. The additional sanctions announced on Friday, including a freeze of some of President Putin’s and some Russian oligarchs’ assets, still suggest little to no impact.

Perhaps surprisingly, the bravery of the people of Ukraine defending their homeland, has created the biggest impact. It certainly has made Russia look bad.

In two words: oil and gas

With its heavy reliance on Russian oil and gas, Europe simply can’t cut off Russia via sanctions due to its nearly total reliance upon Russian supply. Moreover, the sanction that called for cutting Russia out of the SWIFT banking system also didn’t occur. Germany and Italy put a hard stop to that one and categorically refused to adopt it. However, a compromise solution came into effect over the weekend, kicking out several Russian banks from participating in the SWIFT system.

Many traders think the sanctions are a joke as they report normal dealings with regard to import/export trade. So, business with Russian suppliers still appeared to operate normally as of last week. RusHydro, a Russian bank, named in one of the sanctions, along with Sberbank, used by suppliers in Europe, reports “business as usual,” as well with effectively, no change or impact. Freezing bank transactions and access to western markets will work just like anti-dumping cases – Russia will find plenty of workarounds. Moreover, Russia will run transactions through China if necessary.

Join the MetalMiner team for a 30-minute briefing on the aluminum and carbon steel markets and other key developments from the Russian invasion of Ukraine. The webinar runs from 11:00-11:30 central time on Wednesday, March 2.

In fact, China accidentally leaked some information in terms of how the Chinese media will cover the Russian invasion (hint: nothing negative about Russia).

As for a sanction covering US oil…

Surprisingly, the Biden administration did not add a sanction dealing with Russian oil at all. Had the US stopped buying Russian oil completely, that could have created some financial hardship. In addition, by bringing US domestic production back on, that too would help lower the price of oil. By stopping Russian oil imports, and helping tank the market, Russia would struggle to sell oil to China as well. 40% of Russia’s revenue comes from oil and gas which has increased in price nearly 50% from Jan 1 2021.

MetalMiner will include an oil forecast and adjust all long-term forecast ranges for non-ferrous and ferrous metals in its soon-to-be released Annual Outlook Q1 quarterly update.  

In addition, Biden should have issued immediate sanctions against Putin himself, as opposed to waiting a day. Furthermore, the US should also establish sanctions against China for helping Russia.

Putin betted on a gutless West that would not stand up to an invasion. He’s won tactically as of last week. And his latest nuclear threats suggest he feels threatened by how long it has taken to take control of Ukraine. How it pans out in the long term remains unknown. Ukraine is a large country to occupy. The going theory/end state involves the installation of a puppet regime by Moscow with Russia backing out within months. Ukraine will remain as a vassal state under Moscow’s control.

The markets appear to have started a recovery. Pity for the Ukrainians – the West has initially led them down the river only to appear to abandon them. The Ukrainians themselves appear to have launched a strong guerilla counterattack. Now the funding of arms from the West and the Starlink satellite turned on by Elon Musk to enable critical communications, may turn the tide and thwart Russia. Let’s hope someone has a strategy to de-escalate the nuclear talk.

 

In 2018, a pair of us on the MetalMiner team attended the “premier aluminum conference in Europe” — Aluminum 2018 Dusseldorf. Although Dusseldorf felt like a charming Ohio blue collar town with good beer, one of us left the event with a deep cough (obviously pre-Covid). Oddly enough, the weather alert app kept displaying daily ozone levels in the “high” or “extremely high” range. As a puzzled American, one of us appeared confused and the other, thankfully knowledgeable. The cough comes down to the type of energy now used in Germany, coal. MetalMiner’s European colleague quickly explained that after the Japanese Fukushima nuclear disaster, Germany implemented a plan to shut down its entire nuclear operations no later than 2022. 

Source: MetalMiner CEO Lisa Reisman

In hindsight, that decision by Germany appears both foolish and ironic. Foolish because Germany has lost its negotiating power (pun intended) with Russia for which it relies.  It’s ironic because the country already had “clean energy” but now must turn back to dirty energy to avoid blackouts.

Join the MetalMiner team on Wed March 2, 2022 at 11:00-11:30 for a market outlook on the impact of the Russian invasion on aluminum and steel prices.

In the meantime, while the world watches the Russian invasion and also the impact of sanctions, (we’ll venture a guess that they will have minimal impact), the MetalMiner analyst team discussed Europe’s energy situation and the impact on various metals markets.

On stability of the electric power grid in Europe

Have you ever stood in a field and felt a constant breeze for hours with no interruption at all? Well, we haven’t either. However, if you think wind comes and goes how about relationships with other countries like Russia?  Perhaps one can conclude that renewables serve best as supplemental energy sources, certainly not primary sources. When Texas needed to fly helicopters with jet fuel derived from oil to thaw out windmills, clearly the grid did not perform as planned. This begs the question: will the move to green energy continue and will it pull up metals prices needed to support green energy initiatives? If the trend does not continue, one might expect a sharp reversal for several metals. 

Evidence that the US power grid has weakened

Home and commercial generator manufacturer Generac has seen a big uptick in home generator sales according to this recent article. Heck, even one of our analysts recently purchased a natural gas generator from Generac to shore up a weaker local power grid. And CEO Aaron Jagdfeld confirmed rising sales in Russia and the Ukraine by stating, we’re seeing interest in Russia and Ukraine which arguably might be related to some of the security concerns short term.”  

To us, this represents a sure sign that people know the grid appears unsustainable. The green narrative centers around climate change as the root cause of more severe weather but the other factor relates to the unreliability of green energy and power companies have failed to make the investments in back-up energy sources needed to support wind and solar. Green energy goes down far more often than either nuclear or coal plants.

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January 2021 MMO reportWe have officially turned the page on 2020.

Buyers should make sure to equip themselves with the knowledge to source smartly after what was a volatile 2020.

In that vein, the MetalMiner Monthly Metal Outlook (MMO) report for the month of January is now available. In addition, readers will find news, analysis and much more covering copper, aluminum, nickel/stainless, tin, lead, zinc, HRC, CRC, HDG and plate.

The January report closes the book on 2020, recapping price trends and relevant metals sector developments in December. Furthermore, subscribers have access to industrial buying strategies and support and resistance levels for each of the aforementioned metals.

However, the report is only available to subscribers. Don’t miss out on the MMO report’s invaluable insights — visit the MMO landing page for more information.

mergers and acquisitions

iQoncept/Adobe Stock

As we noted earlier this week, the Cleveland-Cliffs acquisition of ArcelorMittal USA came at a price tag of $1.4 billion.

This comes after Cleveland-Cliffs acquired AK Steel earlier this year (among other things, AK Steel is the lone remaining U.S. producer of electrical steel).

The deal includes nearly all of the ArcelorMittal subsidiary’s North American facilities (with a few exceptions, as we will elaborate on shortly). Cleveland-Cliffs expects to close the deal in Q4 2020.

Since the announcement, Cleveland-Cliffs shares are up over 12%.

So, what does the merger mean for the North American metals scene and relevant sectors, like automotive?

Are you prepared for your annual steel contract negotiations? Be sure to check out our five best practices. 

Initial reaction to Cleveland-Cliffs acquisition of ArcelorMittal USA

Overall, this seems to be a solid move for everyone involved.

ArcelorMittal offloads old assets that have a high cost structure for producing steel while still maintaining a mill with one of the lowest cost structures in the country.

On the other hand, Cliffs gains a large auto book of business with good margins. Furthermore, the steel market will see old, expensive capacity taken out. As such, that will make room for new capacity scheduled to come online in the near future.

Strengthening auto position

As noted previously, the acquisition makes Cleveland-Cliffs the largest flat-rolled steel producer in North America. The deal will also make Cleveland-Cliffs — the oldest iron ore mining company in the country — the largest iron ore pellet producer in North America, with 28 million long tons of capacity.

The deal further strengthens the company’s position in the automotive sector. The company likely controls 60%-65% of exposed auto sheet supply (think the steel used on the outside of a car).

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This has been a volatile year for global markets, with already slowing economic growth compounded by the destructive impact of the coronavirus pandemic.

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Back by popular demand, the MetalMiner Long Term Outlook report has been updated effective June 25.

These prices represent MetalMiner’s latest long-term outlook for the base metal complex (aluminum, copper, nickel, lead, zinc and tin), along with the four forms of flat rolled steel (HRC, CRC, HDG and plate).

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Editor’s Note: MetalMiner has recently partnered with Raistone Capital to help manufacturing organizations claim and quickly obtain access to cash refunds for Section 301 tariffs paid on products that are on the exclusion list. Tariff refunds help buying organizations add actual dollars to their bottom line. 

Tariff exclusions are published in the Federal Register (there is also a search portal). You can also search through the lists with your HTS code: 

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Environmental damage caused by mining and refining processes like smelting are not uncommon.

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

In the last two years alone, one site lists 10 major tailings dam failures alone; environmental damage from tailing ponds is only the thin end of the wedge when it comes to the wider remit of potential environmental consequences arising from mineral extraction.

Yet not one of those events listed was in China, despite half the world’s metals being refined and produced there, and a sizable proportion of the world’s mines being in China.

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Vertical integration may play well in classic corporate HBR (Harvard Business Review) circles, but steel industry observers may have a hard time envisioning the synergies Cliffs outlined in its merger announcement and presentation Dec. 3, creating a best-in-class, EBITDA-maximizing combined Cliffs-AK Steel entity!

Keep up to date on everything going on in the world of trade and tariffs via MetalMiner’s Trade Resource Center.

To us, the best rationale for the deal appears on slide 14, outlining AK Steel’s short-term debt position:

If you buy the notion that Cliffs can swallow AK and convert that company’s debts to its own and save on interest expense, then score one for the deal!

So why would Cliffs buy AK Steel?

A compelling reason appears on slide 11:

Despite AK Steel’s relatively improved financial performance under the leadership of CEO Roger Newport, if AK Steel represents ~30% of Cliff’s annual iron ore sales, Cliffs faces significant “customer concentration risk.” In other words, the health of AK Steel would significantly — negatively — impact Cliffs.

Forget about “renewal risk” — let’s just call it “customer risk.”

Cliffs would be hosed without a healthy AK Steel!

What about AK’s Ashland Works?

We continue to see different public announcements from AK Steel about the cost of Ashland Works. The Ashland Works facility today operates a hot-dipped galvanizing line (the blast furnace was idled nearly four years ago).

According to comments from AK Steel directly, “…the company announced it would close the ‘largely-idled’ Ashland Works facility by the end of 2019 to ‘increase utilization’ at its other U.S. operations. The plant employs 230 people and the closure would yield approximately $40 million in annual cost savings, according to the company.”

But by keeping it open, as detailed by Cliffs, the Ashland Facility, “Eliminates up to $60m of closure-related costs.” The Ashland facility will instead undergo a conversion, which it says, “Potentially provides a compelling, low-capex, high-return opportunity to be a significant merchant pig iron supplier in the Great Lakes.” (We presume U.S. Steel and ArcelorMittal will avail themselves of this compelling offering.)

So, we’re not sure if keeping Ashland Works open saves money or if closing it does.

We won’t pontificate over the “AK Steel best-in-class position in non-commoditized steel” for a variety of reasons that we have previously covered here in our GOES MMI series. (Or the fact that the rise of electric vehicles will start to make a dent in the need for the kinds of automotive exhaust grades, such as 439 and 441, produced by AK Steel.) We acknowledge AK does have a strong position in ultra-high-strength steels.

So, the real question comes down to the “synergies” outlined by Cliffs.

Does the margin Cliffs generates — approximately $30/$40 per short ton for every pellet produced and sold to AK — translate to an EBITDA jump of that same amount for steel products sold by AK, such that they leapfrog the EAF producers, as Cliffs suggests?

Looking for metal price forecasting and data analysis in one easy-to-use platform? Inquire about MetalMiner Insights today!

Well, now isn’t that the $1.1 billion question?

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