The LME nickel contract and robust economic data

4 April 2023 – Is the LME diluting the nickel contract with its announcement of changes? Or did something slip through the cracks? Robust economic data from Japan. Little liquidity stress in the US financial sector. And mining and mining stocks in good buying position.

Robust economic data from Japan

Japanese corporate sales continued to rise in February 2023, significantly exceeding expectations in the retail sector, for example. Overall, all Japanese sectors recorded an increase. Car sales even had the strongest month since March 2021, rising 5.4% year-on-year in February. Industrial production was up 4.5% month-on-month.

Little liquidity stress in the US financial sector

The US financial sector continues to show resilience to stress, according to data from Deutsche Bank, despite outflows but due to shifts into high-quality funds. New borrowing by banks to secure liquidity fell significantly last week.

Mining and mining stocks interesting

Despite falling share prices in January, analysts have cut European mining and quarrying companies’ earnings expectations for 2023 by just under 3%. This is because factors such as the strengthening economy in China, a tight supply of raw materials and scarce inventories argue for a recovery in the sector in the medium term.

Predictions to be enjoyed with caution

Predictions of economic developments should always be taken with a grain of salt. This applies not only to share values, but also to prices – especially when they are as volatile as steel or stainless steel. Price forecasts that go beyond three months can be considered daring or reckless, if not dangerous.

LME: Nickel contract diluted?

On 30 March 2023, the LME announced extensive changes for the commodity exchange over the next two years. Even though not all measures have been called final, there are indications that the LME is actively trying to change something.

Is the LME softening the nickel contract?

However, some parties are already postulating the possible hope that the expansion of the nickel product range, which has so far been limited to so-called high-nickel content products, could soften nickel prices.

LME = Class I Nickel and QME = Class II Nickel

However, it may have slipped through the parties’ fingers that the LME has no intention of diluting its Class I contract with Class II products. Instead, it intends to offer Class II nickel products with a partner in China, the Qianhai Mercantile Exchange (QME), which also belongs to the HKEx, as a spot market offering. Only one Class I product, nickel powder, is to be added to the LME’s Class I offering.

“Why should the LME put pressure on its existing premium product. If the quality were to be diluted here, what would the price be worth at all?” said Thorsten Gerber, CEO of the Gerber Group, today.

More opportunities and transparency in the nickel market?

With these measures, the LME creates more possibilities for trading, turnover, and possibly also transparency, and the market can possibly implement even higher prices for Class I nickel, since Class I and Class II are clearly separated from each other. Whether this can work and whether this restructuring of the LME will lead to more confidence remains to be seen, especially in the necessary consistency on the part of the commodity exchange.

What will now become of the stainless steel alloy surcharge?

The EU stainless steel producers might not welcome the measure of the LME so much, since with more transparency they might have to look for a new benchmark value for the alloy surcharges in the near future – they do not throw Class I nickel into their EAFs anyway, but Class II ferronickel.

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