Recently, the “epic” market of LME (London Metal Exchange) nickel futures has attracted widespread attention, and just when the market expected that the short positions represented by Tsingshan Group may be in danger of being squeezed, the LME decided on March 8. Trading in nickel futures was suspended and delivery of all spot nickel contracts scheduled for March 9 was delayed.
As of now, LME nickel futures have been suspended for three trading days. At present, there are expectations in the market that LME nickel futures are expected to resume trading next week. So if trading does resume next week, what might the LME nickel do after a big shock? Will Tsingshan, who once encountered the risk of short position, speed up the liquidation? What other potential risk factors are worth paying attention to in the future? How will the medium and long-term nickel price work? Regarding these kinds of conjectures, the reporter of “Daily Economic News” and a number of futures industry people conducted some deductions.
Conjecture 1: Is LME Nickel expected to resume trading next week?
This week, the “epic” market performance of LME (London Metal Exchange) nickel futures has attracted widespread attention, with fierce confrontations between the bulls and the bears over the final delivery. Just when the market expected that the short nickel futures represented by Tsingshan Group might face the danger of being squeezed, the LME took action.
On March 8, LME nickel futures ushered in a crazy moment. The intraday high reached the $100,000/ton mark, and the largest intraday increase was close to 110%. However, after 2 p.m. that day, LME nickel futures prices plunged rapidly. After 4pm, the LME announced it would suspend nickel trading for at least the rest of Tuesday.
In addition, the LME also announced that it will cancel all nickel trades executed on or after 0:00 a.m. local time on March 8 on OTC and LME select screen trading systems, and will postpone all spot nickel scheduled for delivery on March 9, 2022 Contract delivery.
And this series of operations also gave Qingshan Group a chance to breathe. Regarding the LME series of operations, Wang Yanqing, a senior non-ferrous researcher at CITIC Construction Investment Futures, whose research direction includes the nickel industry chain, said in an interview with reporters today that measures such as LME suspending trading and postponing contract delivery are not so much to protect short positions as to protect short positions. The LME itself, “Because the futures market implements a daily debt-free system, which means that it is settled once a day, and then the money you make will be credited to your account, and the money you lose will be deducted from your account. Recently, because the LME nickel has risen too fast, the shorts have lost too much, resulting in a high risk of default. If there is a large number of defaults, then this mechanism will fail, and this mechanism is a relatively low-level mechanism in the futures market. If this If the mechanism fails, the LME will collapse, and many parties may even seek compensation from the LME.”
As of now, LME nickel futures have been suspended for three trading days. According to media reports, the LME recently stated that the preconditions for reopening LME nickel trading need to be met: first, safe operating procedures can be achieved after the reopening; second, the possibility of safe liquidation of long and short positions before the reopening is prudent. However, at present, there is still uncertainty about whether these conditions can be achieved.
Wang Yanqing believes that if LME nickel is to resume trading next week, then the problems caused by the unusually skyrocketing nickel price must be resolved first, “Either the long and short sides will negotiate to close the position, or it will be delivered. In addition, the LME also released The announcement said that it is possible to transfer positions, my understanding is that it is equivalent to moving the expiration date of the contract back, but it should still require an agreement between the long and short sides.”
At the same time, he also pointed out, “If next week (LME nickel) can resume the opening, then it will prove that the risk of this event has basically come to an end.”
Conjecture 2: If LME Nickel resumes trading next week, what might happen to the market?
If LME nickel futures can resume normal trading next week, can the previously volatile market return to a relatively stable state?
In Wang Yanqing’s view, the recent price of LME nickel futures is too high. If the risk is resolved, it should return to its fundamentals. It is expected that after the market reopens, the short-term LME nickel price may drop significantly.
“Now the LME has cancelled the results of the nickel trade on March 8, and even the closing price of $50,000 on March 7 was still too high because the LME nickel price was only around $25,000. With such a large change in fundamentals, although the supply is tight, it is difficult to understand such a large increase in the short term.” He pointed out.
A non-ferrous research director of a futures company believes that if LME nickel resumes trading next week, short-term volatility may still be large, “I think the best outcome of this LME nickel incident is that the long and short sides can agree to liquidate their positions, according to the domestic closing price. Calculation, based on the 200,000 tons of nickel rumored in the market, the shorts will lose about 2 billion US dollars. We can understand that the LME nickel has resumed trading, and the long and short parties may have reached an agreement to liquidate their positions, so that the domestic market volatility may stabilize, but the LME nickel market may be stabilized. For example, the opening price of 50,000 US dollars is still high, and the current domestic price is calculated in reverse, or at least there are 2 consecutive lower limits, and the volatility is not low.”
A relevant person in charge of a domestic futures company said in an interview with reporters a few days ago, “I think it is actually impossible to judge (the short-term trend after LME nickel resumes trading), because the current futures price has been separated from the supply and demand pattern of nickel itself, in fact Now what everyone is trading is the market sentiment and uncertainty, and we can only wait and see what happens when this squeeze is over.”
“In addition, we will have to wait until the conflict between Russia and Ukraine has come to an end, or after the impact of the conflict has been eliminated, and then we will re-price nickel, but at least from the current fundamental point of view, the inventory of nickel is still gradually decreasing.” He told reporter.
Conjecture 3: After the resumption of LME nickel trading, what impact will it have on Shanghai nickel?
Regarding the possible impact of LME nickel resumption on the domestic futures market, Wang Yanqing pointed out, “(LME nickel resumption) will definitely have an impact on Shanghai nickel, and the two markets are already linked. If LME nickel resumes trading next week, If there is no significant drop, the price of nickel in the Shanghai Futures Exchange may rise, but the price of the Shanghai Futures Exchange should be lower than the price converted from LME nickel, because the domestic supply is expected to be better than that of foreign countries.”
It is worth noting that at present, the spread of nickel futures at home and abroad is at a historically high level. “Assuming that the price of LME nickel after the resumption of trading is 40,000 US dollars, then the price difference with Shanghai nickel is tens of thousands of yuan. In the past long period of time, the relatively balanced price difference between LME nickel and Shanghai nickel was generally one or two. within a thousand dollars.”
Conjecture 4: After resuming trading, will Qingshan speed up the liquidation?
Recently, Tsingshan Group fell into a crisis of forced position due to the abnormally soaring nickel price. There are many views in the market that this is mainly due to the fact that Tsingshan Group has not moved or closed its large short positions in a timely manner recently.
In Wang Yanqing’s view, the outbreak of the Russian-Ukrainian conflict has put Tsingshan Group in a dilemma, “because if a large number of positions are closed, the price will be raised, and then he has to make up the margin for the remaining short positions, and vice versa. It caused a lot of losses to myself, so it is a relatively uncomfortable situation. Even if you want to close your position, you can only close it little by little to minimize the volatility of the market. “
So, if the LME Nickel resumes trading next week, will the “shocked” Tsingshan Group accelerate its liquidation?
In this regard, Wang Yanqing believes that Tsingshan Group will not have a quick liquidation situation. Even if it wants to liquidate its positions, it will only be done slowly, because if a large number of positions are liquidated in the short term, it will definitely have a great impact on the market price. ; And when the spot profit is relatively good and the liquidity is no problem, Tsingshan Group can even choose not to close the position.
Conjecture 5: What other potential risk factors are worth paying attention to?
Although there is a possibility of easing the situation in the future, it is undeniable that before the boots really land, the situation of the LME nickel long and short game is still complicated, and some potential risks may be brewing in it.
In the opinion of the non-ferrous research director of the above-mentioned futures company, “the next possible risk is that the long and short parties do not reach an agreement to liquidate their positions, and the LME nickel price will still fluctuate disorderly. But we must also worry that the bulls will receive the full support of international financial capital and maintain the momentum of vicious squeeze.”
The situation in Russia and Ukraine is an important variable affecting nickel prices in the near future. Wang Yanqing believes that the conflict between Russia and Ukraine is the trigger for the surge in international nickel prices, but the core impact is still the US sanctions. Even if the situation in Russia and Ukraine eases in the future, the US may still It will sanction Russia, so it is necessary to observe the direction in which the US sanctions against Russia will develop in the future.
Conjecture 6: If LME Nickel fails to resume trading, what will be the impact on the domestic market?
The LME nickel squeeze event fully reflects the unpredictability of the futures market, and if the LME nickel still does not resume trading next week or longer, it will affect the domestic nickel market (futures, spot) What kind of impact?
In this regard, Wang Yanqing predicts that if LME nickel fails to resume trading, the futures pricing function of Shanghai nickel will be strengthened, and spot trade will recover to a certain extent, but international spot trade may continue to stagnate.
The non-ferrous research director of the above-mentioned futures company told reporters, “If LME nickel fails to resume trading next week, it means that the long and short sides have failed to reach an effective agreement. Due to the strong correlation between domestic and foreign metal markets, and the pricing power is still in the LME market. , the domestic reversed LME price is around US$30,000 to US$35,000/ton, which is relatively low compared to the opening price of LME. Therefore, domestic futures and spot quotations may move closer to LME nickel prices, but they may not be acceptable to the industry chain. , trade may still be based on wait-and-see, waiting for the incident to subside, which means that it may seriously affect the normal production and operation of the industrial chain.”
It is worth mentioning that at present, the largest increase in the global market demand for nickel comes from new energy vehicles. As one of the important raw materials for lithium batteries, the recent surge in nickel prices has triggered the market’s concern that the new energy vehicle industry may be overwhelmed by costs. worry. In the process of the recent sharp rise in international nickel prices, the A-share new energy vehicle industry chain once experienced a relatively obvious decline.
Conjecture 7: How will the medium and long-term nickel price work?
Although short-term sharp fluctuations in nickel prices may be unavoidable after the resumption of LME nickel trading, the market will eventually return to rationality after madness. So from a medium and long-term perspective, where is the “anchor” for nickel prices?
Wang Yanqing predicts that “nickel should still have relatively strong fundamentals this year, because the entire supply is tight. In fact, the main impact is still in Russia. If Russia’s supply can be released, the situation of tight nickel supply in the second half of the year will be reduced. It can be alleviated. But if Russia’s shipping channels are not smooth, there will be a shortage of (nickel supply) throughout the year, because the new production capacity is not released so quickly, and the old production capacity still needs to support the supply.”
According to the relevant person in charge of the above-mentioned domestic futures company, the reason why the market has relatively optimistic expectations for nickel in the recent stage is actually considering the new demand for new energy. “In the past, nickel was mostly used on stainless steel, but stainless steel The growth space of nickel is still very limited, but now nickel has found an emerging demand growth point, and new energy is developing rapidly. Although the current proportion of new energy in the overall demand for nickel is relatively small, the market is developing rapidly Later, if the demand share of new energy gradually expands, and the production capacity of nickel cannot keep up, it may lead to a mismatch between supply and demand.”
However, he also pointed out that although it is difficult to predict the medium and long-term performance of nickel prices, the recent extreme prices in the LME market must be inflated.
Source of cover image: Photo Network-500450704
