Peter Hannah Profile picture
Mar 10 9 tweets 4 min read
One result of the @LME_news #nickel madness has been people questioning the wisdom of hedging in nascent derivative markets like #cobalt & #lithium if the risks of wipeout margin calls could undermine any risk mitigation. It's a fair concern, but one that's broadly unfounded...🧵
2/ The key distinction is between physically-settled & cash-settled futures. The meme move on Ni was the result of a short squeeze on a contract requiring physical delivery of expiring positions - "he who sells what is'n his'n must pay the price or go to prisn" as they say
3/ Co & Li on @LME_news, @CMEGroup & soon @SGX are cash-settled basis @Fastmarkets prices, & it's infinitely more difficult to squeeze & move an open spot market assessed by a PRA than it is an exchange delivery point based system (see also Apr 2020 WTI example)
4/ That's not a knock on phys-settled futures. For amendable commodities they're the gold standard - transparent activity all can see & verify. But for those that aren't suited due to market size, material fungibility or qualification requirements, cash-settled is the alternative
5/ E.g. participants in the battery supply chain have exact requirements on the Li & Co they're sourcing (same for Co in aerospace) as well as its ESG-credentials so can't simply collect material (even if meeting spec thresholds) delivered into an exchange warehouse.
6/ So while cash-settled contracts do require trust in a 3rd party PRA index methodology (we do our very best, believe me!), they are essential where price risks need managing in markets unsuitable for physical futures.
7/ And the fact that participants don't have to worry to the same extent about the kind of shenanigans that can result in flash crashes or flash rallies is an added bonus.
8/ Let's also be clear that Ni at 100k (before the day was arbitrarily cancelled) was an artifact of its specific contract mechanism (like WTI at -$37/bbl). Li at $70-80/kg is not. In fact, it's in large part a result of market prices being ignored for too long.
9/ The fact that LiCO3 & LiOH is still flowing under single digit $ contracts signed years ago & the average global price is probably somewhere ~$15-20/kg completely misleads as to the tightness of this market. There is a real shortage, and spot prices show it very clearly!

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More from @PHmetals

Feb 18
Two recent @Fastmarkets articles explain an interesting dynamic unfolding in the Chinese #cobalt market:
Cobalt sulphate price has hit a 3-year high driven in part by strong downstream demand, but particularly by tightness in supply of the upstream feedstock, cobalt hydroxide, due to logistics issues getting material from the #DRC out via #SouthAfrica: dashboard.fastmarkets.com/launch?url=/a/…
Market participants are not anticipating the problems to be resolved in the near term: “I don’t think the logistics issues from South Africa to China will ease in the first quarter or even the first half of 2022,” a cobalt hydroxide supplier said.
Read 6 tweets
Oct 27, 2021
1/ #China released its working guidance for achieving #carbon emissions peak by 2030 & neutrality by 2060 last weekend and it contains some pretty significant implications for nearly all commodity markets: metalbulletin.com/Article/401353…
2/ At face value it spells out ambitious overhauls to see industries like energy, steel, NF metals, petchems, transport & construction to reach peak CO2 before 2030, strictly controlling new projects in high-emission sectors such as steel, cement, glass & aluminium.
3/ Meanwhile new energy materials & vehicles, and high-end equipment manufacturing will accelerate as strategic emerging industries. To achieve non-fossil energy consumption of >80% by 2060 China will also focus on renewables incl wind, solar, biomass, tidal & geothermal.
Read 9 tweets

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