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Castle Peak nickel incident: a perfect "Soros style" sniper
Update Time : 2022-03-22 View : 2210

Nickel price alone may have an adverse impact on Tesla's gross profit margin of 2%.

The "Castle Peak nickel" incident is a perfect "Soros style" sniper by Glencore, a global commodity trading giant, showing its accurate grasp of the industry, market and opportunities, but the outcome may not replicate the success of Soros style sniper.
For ordinary investors, in addition to eating melons "to witness history", it is more important to grasp what impact this event will have on the investment market and which industries and companies will be affected by the chain reaction of this event.
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A perfect "Soros style" sniper
According to market rumors, Qingshan holding group (hereinafter referred to as "Qingshan group"), a private enterprise in China, holds a short contract of 200000 tons, while the Swiss commodity trader Glencore Xstrata (hereinafter referred to as "Glencore", LSE: Glen) closed its position on the nickel of the London Metal Exchange (LME) in an attempt to win 60% of the equity of Qingshan group's Indonesian nickel mine.
The specific operation is that Glencore takes advantage of its financial advantages to buy more, driving up the futures price and driving up the spot price. Because Castle Peak Group has no spot that can be delivered, it can only buy the spot delivery at a high price - but there is a shortage of spot in the market, or continue to pay the guarantee fund to prevent being forced to close its position. There are market rumors that Qingshan group will lose nearly 10 billion US dollars this time.
However, both sides made a statement on March 8, and relevant personnel of Glencore replied that Glencore's "claim that Glencore wants 60% of the equity of Indonesia nickel mine of Qingshan group is totally nonsense." Xiang Guangda, chairman of the board of directors of Qingshan group, said: "Qingshan is an excellent Chinese enterprise. At present, there are no problems in position and operation."
However, it can be seen that the nickel price of LME rose sharply on March 7 and 8, and the intraday price rose from $30000 / ton to more than $100000 / ton, an increase of 250%.
Regardless of whether the statements made by both parties are true or false, it is certain that Glencore's short selling behavior is an accurate sniper on the market, which is similar to Soros's operation method. Among them, Glencore's accurate expectation of the market "grey rhinoceros" and its decision to see the right time and make a quick shot.
The so-called "grey rhinoceros" is a potential crisis with high probability and great impact. In this event, the sniper has long seen that nickel has the inevitability of price rise.
After COVID-19, the fiscal stimulus measures of developed economies boosted the consumption of durable goods for residents, the global manufacturing activity rebounded, and the output of stainless steel increased significantly. According to CICC data, the global output of stainless steel, the main downstream of nickel, increased by 13.9% year-on-year in 2021.
Meanwhile, in 2021, the demand for ternary batteries in another end consumption field of nickel was strong, and the proportion of nickel beans and nickel powder used in nickel sulfate production increased to 46%.
Stainless steel and ternary battery are the main downstream demand markets of nickel, accounting for 75% and 7% of nickel demand respectively, and the rest are in alloy, electroplating, etc.
But at the same time, CICC's figures show that the existence of the world's statistically available nickel reserves has decreased by 63% by the end of 2021 compared with the beginning of the year. The average price of LME nickel in 2021 has increased by about 34% compared with 2020.
Therefore, the upward trend of nickel price has long existed, which can be said to be a "grey rhinoceros" event. At this time, Glencore is long, while Castle Peak Group holds a large number of short contracts.
Secondly, the escalation of the conflict between Russia and Ukraine provides Glencore with an opportunity to take action.
Russian nickel is the main nickel delivery product of LME. Originally, Castle Peak Group could buy Russian nickel for delivery in the process of price rise, but due to the situation between Russia and Ukraine, Russian nickel was kicked out of the scope of delivery by the London Stock Exchange. It is rumored that the 200000 ton nickel short futures held by zhongqingshan may not be delivered. Qingshan's own production of high nickel matte is not a standard delivery product.
You know, the output of Russian nickel accounts for 6% of the global primary nickel (including primary nickel and secondary nickel) and 22% of the global primary nickel production capacity. After being excluded from the scope of delivery, the market's concern about the sustainable supply capacity led to the continuous repurchase of contracts by short sellers, driving the nickel price to rise further.
Glencore accurately grasped the potential and stepped on the right point, so there was the "Castle Peak nickel" incident.
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How did the "Castle Peak nickel" incident end?
For most people, it is after this incident that they know about Qingshan group. However, the market position of Qingshan group is not low.
Qingshan group was founded in the 1980s. After 30 years of development, it has become the largest stainless steel production enterprise in the world and the first private iron and steel enterprise in China. Its business includes nickel mining, ferronickel smelting, stainless steel smelting, stainless steel continuous casting billet production and stainless steel plate, rod and wire processing. It can be said to be a whole industry chain company. In the Fortune Global 500 list, Castle Peak Group has been listed for three consecutive years, ranking 279 in 2021.
For the short contract in the hands of Qingshan group, there are two statements, one is 200000 tons, and the other is to directly hold 100000 tons.
The market also has various guesses about the final result of this event:
The first guess is that Qingshan group may lose billions or even tens of billions of dollars by forcibly closing its position.
British mining company analysts believe that if the forced liquidation, the book loss of Qingshan group will be $12 billion. According to the research and analysis of Huachuang securities nonferrous metals industry, the event may end with a loss of $6 billion for Qingshan group.
The second guess is that the third party is involved, but it is not certain who wins or loses between the long and short sides in the end.
The Chinese version of Barron weekly believes that at least the first half of the second guess may be right. After all, on March 8 London time, LME announced the suspension and cancellation of all nickel transactions executed on the OTC and LME select screen trading system on or after 00:00 a.m. UK time on March 8, 2022, and postponed the delivery of all spot nickel contracts originally scheduled to be delivered on March 9, 2022.
LME said the decision to suspend nickel futures trading was based on maintaining market order. LME also said that if the situation is still unstable, the suspension of trading may be extended. LME CEO said that suspending nickel trading was the right decision, and LME's fundamental responsibility was to maintain market stability.
At the end of December 2012, HKEx acquired LME with £ 1388 million (totaling RMB 11.502 billion).
Some analysts in the market believe that the reason why LME will do so is that it can't afford the subsequent chain reaction. According to Bloomberg, a trading executive believes that "the LME trading system is out of control and needs intervention, otherwise this phenomenon may spread to other metal futures."
However, there is no doubt that this operation will have a positive impact on Qingshan group. As for the subsequent delivery time and delivery price, there will still be great uncertainty.
It is certain that all close positions market needs to end with short position closing stop loss. Up to now, the liquidity of spot pure nickel is poor, and the fierce market is expected to continue.
However, the subsequent impact of this incident is not limited to the exchange and Castle Peak Group, but will spread to the downstream industrial chain.
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The ultimate impact is not just in Castle Peak
The Qingshan nickel incident brought "nickel" into the world's vision. In order to better understand how this incident will affect downstream industries, more interpretation of nickel is needed.
Nickel is a silvery white metal with good ductility, high temperature resistance and not easy to oxidize. Nickel products can be divided into grade I and grade II products. For the two main downstream markets, it can be simply understood that primary nickel is mainly used for ternary batteries and secondary nickel is mainly used for stainless steel production.
The growth of global demand for stainless steel in 2021 and the strong demand for ternary batteries in China jointly promoted nickel consumption. China's imports of nickel pig iron (secondary nickel products) increased by 8% year-on-year, and the cumulative imports of primary nickel increased by 118% year-on-year.
The main product of Indonesia nickel mine of Qingshan group is secondary nickel.
However, according to the analysis of CICC, the growth rate of stainless steel production is expected to decline in 2022, and the growth rate of demand for primary nickel will drop to 3.5% from 16.5% in 2021; However, thanks to the trend of high nickel, the demand for nickel will increase by 82% year-on-year to 457000 tons.
It is simply interpreted that what the market lacks is primary nickel, not secondary nickel. In 2022, the global demand and supply of primary nickel will increase by 10.4% and 16.6% respectively year-on-year, and the balance of supply and demand will gradually change from gap to slight surplus. The global inventory of pure nickel will decline by 63% in 2021.
Russia's primary nickel accounts for 22% of the global production capacity. In the past five years, 37% of China's pure nickel imports came from Russia. Affected by the conflict between Russia and Ukraine, geopolitical conflicts such as European and American sanctions will lead to the obstruction of Russian nickel trading and transportation.
The agency's calculation shows that on the cost side, due to the rise of raw materials, electricity and sea freight, the global average cash cost and maintenance capital expenditure have increased by 32% year-on-year, and the breakeven line of the whole industry has only moved up from 92% in 2020 to 94% in 2021. It is expected that the operating range of LME nickel price may further rise from US $16000 / ton to US $22000 / ton in 2022.
For enterprises, especially manufacturing enterprises with low net profit margin, there are only two ways to digest the rise of costs: first, reduce production and reduce losses; Second, marry consumers.
As mentioned above, ternary battery is a major demand for primary nickel. Ternary lithium batteries are a large category of electric vehicle batteries. It can also be understood that the new energy vehicle sector will be affected.
An article in Barron weekly on March 8 pointed out that nickel price alone could have an adverse impact on Tesla's gross profit margin of 2%.
CICC predicts that China's nickel import window may continue to close, the domestic inventory will be further reduced, and it is difficult to avoid the transmission of costs to the downstream, until there will be a reduction in production at the downstream demand end in the future, thus forming a negative feedback on the price.
(Huang Yingfang, writer of Chinese edition of Barron weekly)
Editor Wu Haishan
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