Nickel: If in doubt - hedge it out

Guest Article

As anyone involved in nickel knows, it may be the most unpredictable out of the three main LME contracts. The metal prices move all the time, meaning changes could be quite dramatic. The last nickel cash price of 2020 was $16,553.50/MT on Dec 31st, only to print $17,349.50/MT on the first trading day of 2021 (Jan 04th).

Towards the end of Jan 2021, Ni price went well above $18,000 before retreating below this level. There are no profit margins in physical trading that could ever absorb such price fluctuations thus even a simple spot deal that takes a few days from agreeing with the contract to delivery and payment carries significant risk.

This is where LME and SHFE come to the rescue for risk mitigation purposes (in the case of nickel). For copper, aluminum, and zinc these two exchanges are joined by CME.

Daily LME inventories updates are a market signal worth watching. Large one-off outflows are not necessarily a sign of a sudden improvement in demand, however, steady inflows point to quieter physical market activity. While the LME Ni inventory is mostly full plate cathodes, the recent LME registration of Vale’s plating and melting nickel rounds (in addition to their Ni pellets) is an interesting development.

Such types of nickel attract a hefty premium in physical trading, so seeing them delivered to the LME would send a bearish signal.

Elena Godovannaya has been a seller of physical nickel at Norilsk Nickel Europe for over eleven years. Before and after Norilsk Nickel Elena worked at Glencore, Rusal, and Bloomberg. In 2021 Elena joined Hythe Bay Metals (an LME broker).