Curious case of Nickel Mines
This is a story about how exponential increase in Nickel's price negatively impacted a fundamentally strong nickel mining company and without any fault from the company itself!!.
⬜ Little bit of background
We all know that commodity prices are skyrocketing due to Russia-Ukraine tensions and in the fear of sanctions on Russia. Russia has major market share in mining and supply of Nicke. Quick google tells me about 5-6% of nickel in the industries supplied by Russia and about 17% of the high purity nickel comes from Russia. With the fear of sanctions, like any other resource which has dependency on Russia, nickel started skyrocketing from past few days.
In fact, it went much higher than any other commodity out in the market due to lack of volume and high short interest. Quick glance on CFD providers says, nickel price went from 24k to 62k.
https://www.tradingview.com/x/UkHCoAUX/
In reality, it went much further that LME (London Metal Exchange) has to suspend trading nickel. I could not find genuine source on the actual last traded price. But, it seems it went beyond 100k per ton before LME suspending the nickel trade.
⬜ What happened to Nickel Mines??
In general increase in prices of metal positively impacts the companies mining it. But in this case, price of nickel metal went up nearly 5 times and yet, it caused Nickel Mines to drop by 37% from its peak!! How is this possible.
Make no mistake, Nickel mines is fundamentally very strong company with strong financials. Here is a snapshot from my fundamental indicators.
https://www.tradingview.com/x/oQXFJAWQ/
But, something happened which is not in control of the company. Nickel mines sells most of its mined products to a Chinese Nickel and Steel giant - Tsingshan group. Tsingshan is also a major shareholder of Nickel Mines. It so happened that Tsingshan had a short position on Nickel on LME as hedge which went out of proportion due to the event of short squeeze. This has put Tsingshan in the risk of losing billions over margin call.
Being a major supplier and partner to Tsingshan, speculation on Tsingshan dumping nickel mines shares (to come up with additional margin) ran a muck which lead the price to drop from its ATH of 1.79 ti 1.135 in two days. There was also risk of suspending partnership in the unlikely event of Tsingshan going further into financial hardship.
⬜ What is going to happen next?
Nickel is in trading halt in LME and prices in CFD providers isn't moving. Upon checking other markets where nickel is traded, it looked like the peak has been reached and price is calming down. For example, this is snapshot from Indian exchange MCX
https://www.tradingview.com/x/R5vUklXn/
Which means, high chances of Tsingshan recovering from the margin calls.
Demand for nickel (which is used mainly for manufacture of Steel and also as a battery metal) is still pretty high and even if Tsingshan is affected in the way it can impact Nickel Mines, it can only be temporary setback till they find new partners. Considering the high price of Nickel, it can only add value to company mining it rather than taking away from it. Hence, I believed that this is an opportunity.
After sometime, trading resumed on Nickel Mines and company too provided their clarification on the matter which reads as below:
https://www.tradingview.com/x/3DrYORqq/
This clarified that Nickel Mines is not impacted from this event. Post this, stock price recovered back to 1.40.
Even though you are technical based trader, sometimes, it is important to look beyond technical analysis. I believe this is one such scenario.
⬜ Little bit of background
We all know that commodity prices are skyrocketing due to Russia-Ukraine tensions and in the fear of sanctions on Russia. Russia has major market share in mining and supply of Nicke. Quick google tells me about 5-6% of nickel in the industries supplied by Russia and about 17% of the high purity nickel comes from Russia. With the fear of sanctions, like any other resource which has dependency on Russia, nickel started skyrocketing from past few days.
In fact, it went much higher than any other commodity out in the market due to lack of volume and high short interest. Quick glance on CFD providers says, nickel price went from 24k to 62k.
https://www.tradingview.com/x/UkHCoAUX/
In reality, it went much further that LME (London Metal Exchange) has to suspend trading nickel. I could not find genuine source on the actual last traded price. But, it seems it went beyond 100k per ton before LME suspending the nickel trade.
⬜ What happened to Nickel Mines??
In general increase in prices of metal positively impacts the companies mining it. But in this case, price of nickel metal went up nearly 5 times and yet, it caused Nickel Mines to drop by 37% from its peak!! How is this possible.
Make no mistake, Nickel mines is fundamentally very strong company with strong financials. Here is a snapshot from my fundamental indicators.
https://www.tradingview.com/x/oQXFJAWQ/
But, something happened which is not in control of the company. Nickel mines sells most of its mined products to a Chinese Nickel and Steel giant - Tsingshan group. Tsingshan is also a major shareholder of Nickel Mines. It so happened that Tsingshan had a short position on Nickel on LME as hedge which went out of proportion due to the event of short squeeze. This has put Tsingshan in the risk of losing billions over margin call.
Being a major supplier and partner to Tsingshan, speculation on Tsingshan dumping nickel mines shares (to come up with additional margin) ran a muck which lead the price to drop from its ATH of 1.79 ti 1.135 in two days. There was also risk of suspending partnership in the unlikely event of Tsingshan going further into financial hardship.
⬜ What is going to happen next?
Nickel is in trading halt in LME and prices in CFD providers isn't moving. Upon checking other markets where nickel is traded, it looked like the peak has been reached and price is calming down. For example, this is snapshot from Indian exchange MCX
https://www.tradingview.com/x/R5vUklXn/
Which means, high chances of Tsingshan recovering from the margin calls.
Demand for nickel (which is used mainly for manufacture of Steel and also as a battery metal) is still pretty high and even if Tsingshan is affected in the way it can impact Nickel Mines, it can only be temporary setback till they find new partners. Considering the high price of Nickel, it can only add value to company mining it rather than taking away from it. Hence, I believed that this is an opportunity.
After sometime, trading resumed on Nickel Mines and company too provided their clarification on the matter which reads as below:
https://www.tradingview.com/x/3DrYORqq/
This clarified that Nickel Mines is not impacted from this event. Post this, stock price recovered back to 1.40.
Even though you are technical based trader, sometimes, it is important to look beyond technical analysis. I believe this is one such scenario.
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