Nickel & stainless: rebalancing after hectic 2022

After the tumultuous switchback in LME trading in March, nickel has been the price performer among major base metals as LME nickel stocks have declined further.  

LME nickel ended last year 40% higher than the end of 2021 at US$ 30 048 a tonne, easily outperforming the other major nonferrous metals, as stocks in LME warehouses contracted to around 50 000 tonnes, down from more than 90 000 tonnes a year before.

At the same time, investor confidence in the LME’s ability to continue being at the centre of nickel trading and price formation has yet to fully recover from the events of March 2022. Andy Home of Reuters reports LME nickel trading volumes were down 28% last year while nickel trading volumes in Shanghai plunged 70% lower.

Confidence in LME

For the LME, the road back to restoring confidence may be longer than previously expected. Although the lawsuit filed by hedge fund AQR Capital Investment and other plaintiffs has reportedly been dismissed, the independent review of nickel market events conducted by Oliver Wyman and released in January identified significant problems.

In particular, the review recommends new and improved LME rules to prevent risks and strengthen enforcement, including volatility controls to slow down extreme price moves, and new processes to effectively manage client defaults on OTC, as well as centrally cleared positions. In addition, the LME’s decision-making and governance are still the subject of separate regulatory reviews being conducted by the Bank of England and the Financial Conduct Authority.

As if that weren’t enough, new competition for the LME is taking shape in the form of Global Commodities Holdings’ announcement that it will be launch a new physical trading platform for nickel in February. Global Commodities is headed by former LME ceo Martin Abbott.

Mixed outlook

Given the shifting patterns of stainless steel production and ample supply of nickel-bearing material, 2023 got off to a somewhat better start for recyclers than would have otherwise been expected. Stainless steel scrap prices followed carbon steel prices higher in January as steel mills in the West looked to implement price hikes. Overseas demand for scrap has also been healthier than expected.

According to US Commerce Department data, US exports of stainless steel scrap increased 32% year-on-year during Jan-Nov 2022 to 358 000 tonnes on improved demand from Mexico, Taiwan, Canada, and India.

Read the full market update in our upcoming issue >>