“We are manufacturing diamonds today that nobody will want to buy”, warn from the steel sector

Sanctions on Russian commodity exports have sparked another historic price rally, in this case for nickel. Futures contracts for this metal have soared on the London Metal Exchange (LME) to reach $100,000 per ton in three-month options. This caused its listing to be suspended yesterday and it is not ruled out that the closing of its trading may be extended for more days given the “geopolitical situation that underlies the price increase”, according to the LME itself.

And it’s not just nickel. Aluminum is trading at record highs, as has the price of iron ore or scrap metal; keys for the steel sector. The first relevant consequence in months was this Tuesday the stoppage of the ArcelorMittal plant of Olaberría-Bergara before the crazy prices of electricity and gas.

The national steel sector denounces that the increase in energy costs is now added to the maximum prices of raw materials. “It will have consequences. We have a product that is so valuable that no one is going to buy it from you. We are manufacturing diamonds,” say sources in the sector, who maintain that it will be difficult to transfer prices so high in the products to the final customer, which will force production to stop (due to the lack of buyers) or undermine the margins, which came from marking a historical profit in 2021.

The latest market rumor points directly to the possible bankruptcy of the largest nickel producer worldwide, the Chinese Tsingshan Holding Group, after the price of the raw material has skyrocketed. The problem? That the firm had covered itself with short positions that it cannot now face in the face of historically high prices for this raw material.

It faces losses close to 2,000 million dollars, according to Bloombergsince the Chinese nickel producer did not expect the demand has skyrocketed due to the war in Ukraine and before the expectation of the closure of Russian exports of this material – when the country is the third largest producer of nickel – due to sanctions.