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Soaring nickel prices restrain Chinese manufacturers

The unprecedented rise in nickel prices on the Hong Kong-London Metal Exchange disrupts the operations of Chinese producers and manufacturers of nickel-related products and is a major trade across the supply chain of widely used materials. It shows how the failure is echoing.

Over the past week, more than half a dozen Chinese companies, most of which manufacture and supply nickel compounds, warn customers and investors of temporary supply interruptions, price increases, or reduced ability to accept or respond to orders. I sent a notification to.

The price of nickel, the main ingredient used in stainless steel and electric vehicle batteries, rose last week following a spectacular short squeeze centered on China’s largest nickel and steel producers. At some point last Tuesday, the three-month price nickel contract reached $ 100,000 per metric ton, and the LME suspended trading and canceled trading that took place that day. This resulted in a final closing price for the deal last Monday at $ 48,078 per metric ton, almost double the previous week. It is not yet known when nickel trading will resume.

The sharp rise in prices, partly due to Russia’s invasion of Ukraine, is affecting the entire enterprise. Australian base metal producers said Monday that nickel miners’ planned $ 800 million purchase could be delayed due to huge sums. Nickel price movements.

Zillingien Nickel Industry, a medium-sized nickel sulphate and nickel chloride producer based in eastern Jillin, said in a letter dated March 9 that it could suffer losses due to spikes and dramatic increases. I told the customer that there was. Imported raw material costs benchmarked from LME nickel prices.

“A game of ruthless capital has arrived at us at an alarming rate,” said a private company, which said its website was worth $ 2 billion in assets and 5,000 employees. “Companies including us,” lamented the company, adding that “huge losses are no longer inevitable.”

It was not possible to determine if Jilin Futures was in a short position on a nickel futures contract. The company also told customers that it could only guarantee that about half of the amount specified in the accepted order would be delivered.

Miracle Automation Engineering, a maker of automation machinery based in Wuxi, told investors that if nickel prices remain high, it may be necessary to raise the price of nickel products as well. Liaoning-based steel maker Hushun Special Steel told customers last week that it has decided to stop accepting new orders until prices for these metals stabilize.

Last Friday, the China Non-Steel Metal Industry Association, an industry group of hundreds of state-owned and private companies, said it was very concerned about what was called an “unreasonable rise” in nickel prices at the LME. rice field. We believe that nickel prices deviate significantly from fundamentals and are causing serious damage to related industries and companies in the global nickel supply chain.

A spokesman for the group, quoted in a trade magazine, tried to comfort a Chinese company that had to cut production and stopped new orders. The Chinese government, whose prices for some non-ferrous metals such as copper and aluminum soared last year, distributed these metals to target companies and helped solve the problem.

Shanghai office of Chinese metal giant Tsingshan Holding Group, which had a large short position in nickel futures.


Photo:

Qilai Shen / Bloomberg News

Many Chinese nickel producers import raw nickel ore from abroad and rely on the LME price (in US dollars) as a benchmark for overseas purchases. This also tends to be dollars. Companies also have the purpose of hedging LME nickel futures, industry analysts said.

The Shanghai Futures Exchange also has a nickel futures market, but trading on land is denominated in the Chinese currency, RMB, and traders consider this market smaller and less liquid than their UK peers.

Nickel trading continued in Shanghai over the past week, despite a one-day outage, after prices moved by the upper limit allowed by the exchange. The most active nickel contract hit a high of $ 42,225 per metric ton last Wednesday and then fell. It will return to $ 32,624.

Over the weekend, banks and brokers around the world worked to resolve the crisis involving Chinese metal giant Tsingshan Holding Group, which holds a large short position on LME nickel futures and has billions of dollars in margin claims.

Michael Lyon, president of Everwell Resources and a veteran of the metal industry, said the deal’s blunder has hurt nickel producers who have used the LME as a place for genuine hedging purposes.

“This is a completely artificial crisis,” said Lion, who would destroy the physical world of metal trade if producers and true hedgers were unable to carry out activities at the LME. prize.

Currently, commodity prices are skyrocketing, but the prices that investors pay in the open market for commodities such as coffee, copper, and corn have little to do with the prices that customers pay in stores. WSJ’s Dion Rabouin explains. Illustration: Adele Morgan

Write to Rebecca Feng (rebecca.feng@wsj.com)

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