Ground Breakers: LME sidesteps ethical qualms over Russian metal

LME nickel surges on rumours of nickel plant outage, comes back to Earth as fear subsides
The world’s major metals exchange has decided not to ban Russian metal from its warehouses
Lithium miners hammered in morning trade

The LME’s tough 2022 continued overnight, with nickel prices hitting their 15% limit-up on unconfirmed reports of a blast at an Indonesian nickel plant.

It’s their highest level since March at US$30,960/t, when concerns about market shortages were unfounded, with prices sliding back to US$28,840/t.

Precisely why something so strange moved nickel prices so much goes down to a lack of liquidity.

Observers say traders have reduced their reliance on the LME nickel contract after its short squeeze in March, when the exchange reversed a string of trades made between US$50,000-100,000/t to restore an orderly market in a move that shielded shorters including Tsingshan boss Xiang Guangda from multi-billion dollar losses.

Other exchanges, like the Comex in the US, have seen the opportunity to step in and gain some market share.

That price run all stemmed originally from fears over Russian supply after its invasion of Ukraine, which had the potential to put pressure on a tight as all hell nickel market, which was seeing increased demand from battery makers add to demand for class 1 metal.

From Russia, With Love

Recently the LME went out to members in a survey on whether to stop the supply of Russian metal to its warehouses.

It’s come back with an unequivocal no. Ethical dilemmas are for its users to deal with, not the exchange.

“Although the LME was clear in the Discussion Paper that it would not be making a decision on the basis of ethical concerns, and provided the rationale behind that decision, the Exchange did want to acknowledge the number of respondents for whom this topic remains an ethical issue – either predominantly or in addition to other market concerns,” the LME said in its response to a recent discussion paper.

“It remains evident that, for many people, Russia’s actions in the Ukraine have rendered further business engagement unacceptable, and the LME fully respects the rights of others to arrive at this conclusion.

“While the LME does not condone Russia’s actions, it remains certain that an ethical response from the LME would not be appropriate here, not least because a decision by the LME to restrict the usage of Russian metal would impact users of the Exchange more directly than it would impact the LME itself.

“Accordingly, the LME continues to believe that it should not make unilateral ethical determinations of this nature.”

The LME will start reporting tonnages of Russian metal on warrant in January in a move to provide more transparency to consumers, but it hasn’t seen massive influxes yet and says premia for non-Russian metal should avoid prices being dragged down by a rush of unwanted Russian metal into the exchange’s warehouses.

“If we continue to see an increasing amount of self-sanctioning of Russian metals, the risk is that we see more Russian metal being delivered into LME warehouses, which could potentially mean that LME prices trade at discounted levels to actual traded prices,” ING commodity strategist Ewa Manthey says.

While nickel and zinc prices (up 3.5% to US$3131.50/t) ran higher, aluminium and copper tapered after yesterday’s China infused bull run, down 0.4% and 1.4% respective to US$2453/t and US$8375/t.

Winners and losers today?

This morning has been a horror show (and not the good Clockwork Orange kind) for lithium stocks.

While the big iron ore players have led the market lower after yesterday’s hype, they have nothing on the battery metals complex.

The big lithium players have been stripped naked, with Core Lithium (ASX:CXO) down 15.55% after a downgrade to neutral by Macquarie analysts.

IGO (ASX:IGO) is off 7.78%, MinRes (ASX:MIN) down 7.23%, Pilbara Minerals (ASX:PLS) off 11.72% and Allkem (ASX:AKE) down 13.35% despite announcing first lithium hydroxide production from its new Naraha plant in Japan.

Liontown Resources (ASX:LTR), currently building the Kathleen Valley mine in WA, was also down 10.68%.

Looking more positive was Northern Star (ASX:NST), up 1.2%, after announcing a string of super exploration results.

They include a new discovery at Joplin which could extend the life of the Kanowna Belle mine near Kalgoorlie (9m at 6.5g/t among others), the extension of a significant mineralised porphyry at the historic Red Hill deposit with intervals like 343.3m at 1.3g/t and strong hits from the first drill drive underground at the Super Pit (10.2m at 35.4g/t).

RBC mining analyst Alex Barkley, who has an outperform rating and $11 price target on NST, said it was a positive update, with strong regional drilling at Kalgoorlie supporting the case for a $1 billion expansion of the Super Pit’s Fimiston Mill.

“The annual R&R update is expected in Q4 FY23,” Barkley said.

“We expect today’s drill results should contribute positively to Reserve conversion and Resource growth.”