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Oh, what a ride it has been! Recyclers of nickel and stainless steel are continuing to adapt to a number of market and COVID-related challenges, including supply chain disruptions, transportation bottlenecks, rising energy and raw material costs, and labour shortages.

Then in March, disruption of LME nickel trading added a new dimension to the challenges facing metal market participants. While nickel trading has resumed in London, the loss of confidence in the exchange’s ability to provide transparency and liquidity at a time of rising geopolitical risks has, arguably, yet to fully recover.

For scrap market participants, it would be difficult to overstate the magnitude of the disruptions generated by the meltdown in LME nickel trading. Dealers were understandably upset not only by their inability to price metal during the shutdown but also by the perceived favouritism and market interference caused by the LME’s closures and cancellation of trades. In the USA, North American Stainless advised customers it would eliminate days when the LME was closed and Disruption Events from its price calculations in order to “provide the stainless steel supply chain clear direction on April pricing, and to protect the integrity of our industry until the situation normalizes”.

The LME, the Financial Conduct Authority and the Bank of England have all launched reviews of how the exchange managed the situation, but impacted recyclers and other industry members are already asking whether a new reference point is needed as the basis for business transactions and how the LME can prevent this from happening again.

Prior to the LME meltdown, there were already significant sources of concern surrounding the health of nickel and stainless steel markets, most notably: the potential for sanctions against Russian nickel producers following developments in Ukraine; China’s teetering property market and COVID shutdowns; and how central banks would combat elevated inflation levels. Russian giant Nornickel has indicated metal that would otherwise have gone to Europe or the USA will be redirected to China or to other countries that have not sanctioned Russia. 

The conflict in Ukraine and rising inflation levels have prompted significant downward revisions to the International Monetary Fund’s global economic projections for 2022 and 2023, according to its latest World Economic Outlook report. Following 6.1% world growth in 2021, the IMF is now projecting 3.6% growth in both 2022 and 2023 - down 0.8 and 0.2 percentage points, respectively, from the January forecasts. According to the World Bank, “the war in Ukraine has dealt a major shock to commodity markets, altering global patterns of trade, production and consumption in ways that will keep prices at historically high levels through the end of 2024”.