Commodity exchange can’t get out of crisis

7 March 2023 – The LME cannot get out of its crisis of confidence. After the British regulator is seeking legal action against the LME, it has now also become known that a group of ten hedge funds has sued the commodity exchange for damages. Demand for steel and stainless steel from the automotive industry is rising sharply. And are EU stainless steel producers facing a growing problem with scrap supplies?

Commodity exchange can’t get out of crisis of confidence

No sooner had the British regulator FCA announced an investigation into the decision of the London Metal Exchange (LME) than the next complaint by a group of 10 hedge funds is made public. Led by AQR Capital Management, the LME is being sued for at least 96 million US dollars in damages, according to media reports.

20,000 tonnes of nickel not available?

It also recently came to light that the commodity trader Trafigura had bought about 20,000 tonnes of nickel for about 577 million US dollars and had not checked whether the material even existed.

Nickel: Where has all the overproduction gone?

Correctly, it has been reported, e.g. by the International Nickel Study Group (INSG), that Indonesia has become the most important global nickel producer with about 1.6 million tonnes of nickel.

At the same time, and we had already reported this, production outside Indonesia has either collapsed significantly or increased only marginally and has more or less become a zero-sum game.

The Indonesian export ban on the stainless steel and battery commodity also makes it impossible to sell unprocessed ores abroad.

LME stocks still at low level

While the INSG expects overproduction for 2023, the question is where has all the nickel gone? It hasn’t arrived at the LME warehouses. The pitiful remains there are probably mostly unsaleable Russian nickel.

Nickel ores are being sucked straight up from the market

The arrival of about 500,000 wmt of nickel ore is reported from Chinese ports. However, this nickel ore is not destined for the stockpiles, but has been pre-ordered by nickel pig iron (NPI) producers. So it does not contribute to a build-up of stocks. This is also evident on the Chinese spot market. There, spot prices for nickel are already rising again and approaching $ 29,000/MT.

Automotive: Demand picks up significantly

Demand from the automotive industry for aluminium, stainless steel and steel has picked up significantly in recent weeks. Market sources tell us that major German car manufacturers have already arrived at delivery times for new car orders in 2024. The chip shortage seems to have been overcome, but the backlog from 2022 still has to be worked off. We are also receiving reports from the supplier industry that demand has picked up significantly.

EU stainless steel production with growing scrap problem?

European stainless steel production could face a growing scrap availability problem. Just 56% of EU annual stainless steel production could be covered by intra-European and non-European stainless steel scrap, according to statistical data from EUROSTAT and the Worldsteel Association. Certainly, a certain percentage of demand could be covered by the respective member states.

90% scrap share becomes a growing challenge

However, as EU steel producers are forced to use at least 90% scrap in their EAFs due to EU guidelines for green investment aid and subsidies, this is likely to lead to problems and a massive shortage soon.

Own scrap no alternative

Own scrap generated in the production of stainless steel in the mills themselves is not an option, as the mills are not allowed to include it in the calculation for the excessively distributed free ETS certificates.

Scrap export restrictions are increasing worldwide

Export restrictions on scrap have increased sharply in recent years. More than 40 countries now have export bans in force or in planning. The European Union has also introduced a de facto ban on scrap exports with the revised Waste Shipment Regulation.

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