Dividends and Ukraine crisis forces London Metal Exchange (LME) to take emergency measures

For generations or 145 years the prices of basic commodities have been set on the London Metal Exchange or LME and if you own a company in the industrial trade often you will hear about prices on the LME, how they are hedging to ensure a steady price.

When Russia went to war against the Ukraine, prices went up because Russia is a major producer of aluminum, copper, nickel and oil and gas.

In an article by Andy Home of Reuters, the industrial metals were in a bull market because when the world shut down metal prices dropped when the world opened again demand surged.

In the world of commodities, after the price surges, one would expect more companies to go short or expect prices to flatten out or even fall. One company which shorted was China’s Tsingshan Group which is a major producer of stainless steel and nickel production. Nickel was a new high of $48,078 a tonne and when Russia invade Ukraine a short squeeze happened in which Tsingshan Group and all the other companies who were short needed to buy or offer more margin. The price was around $25,000 a tonne. The LME which strives for an orderly market suspended trading to calm the market, otherwise many firms would be out of business. (since the news, the price jumped to $100.000 a tonne, the LME closed down, cancelled all trades and went it opened the price fell).

The LME’s core contracts are not cash settled futures but forwards with positions financed by credit lines secured by collateral.

Nickel was not the only commodity affected, zinc went to a new high of $4,896 a tonne and lead went to a 10 year high of $2,700 a tonne.

Aluminium dropped from a high of $4,073 to $3,498; Tin went down from $49.500 a tonne to $39,080 a tonne. Copper was flat.

The Russian company Norilsk Nickel was not sanctioned but it does provide 63% of the market for refined nickel in Europe. The company also is a strategically significant global supplier of pallaium and the price has reach a high of $3,441 a tonne.

Russian copper supplies 4.4% of European consumption according to the firm Natixis.

UC Rusal supplies 4 million tonnes of aluminum to Europe annually.

For now there is both a supply and demand crunch and the LME is trying to have steady stable markets.

The good news is the LME has announced a probe about the events and why trading was cancelled.

Linking to dividend paying stocks, if you own a company involved in the commodity exchanges the price can fluctuate as the world circles around the sun. All companies try to diversify where they receive their product from, but war is a unknown variable and prices will react. Hopefully the war is over soon and stability comes back to the markets.

There are more questions than answers, till the next time – to raising questions.

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