Global Commodities Outlook

[specuvestor]

I think probably because they think the prices are crazy and hence also hedging what is underground... and couldn't sell fast enough to deliver on the shorts

Hedging is both an art and skill and can be disastrous if cashflow mismatch ("duration risk?") or like SIA the business suddenly turned.

I am not sure how 8billion of losses would not be classified as "normal hedging purposes". Under "normal hedging purposes", if you have 8bil of losses here, you are supposed to have similar gains elsewhere to largely offset it. And you are a producer of a metal that has soared in prices and made hedging losses due to soaring prices.

Nickel Market Crisis Sends London Metal Exchange Scrambling to Prevent Damage

At the center of the action is Chinese nickel titan Tsingshan Holding Group, the world’s biggest producer of a metal used in stainless steel and electric-vehicle batteries. The company, sitting on $8 billion in trading losses, said Wednesday it had secured enough metal to settle all its loss-making positions, according to a state-run media outlet.

Tsingshan has strategic importance to China’s metals industry as a major supplier of nickel and steel. Chinese regulators stepped in and called on domestic banks to help support the company, one of the people said. The fact that Tsingshan’s nickel forward contracts were for normal hedging purposes—and not speculative in nature—helped the company win government support, the person added.

https://www.wsj.com/articles/nickel-mark...1646858558

[Yoyo]

I am not sure how 8billion of losses would not be classified as "normal hedging purposes". Under "normal hedging purposes", if you have 8bil of losses here, you are supposed to have similar gains elsewhere to largely offset it. And you are a producer of a metal that has soared in prices and made hedging losses due to soaring prices.

Hi weijian

Quote 
I am not sure how 8billion of losses would not be classified as "normal hedging purposes"

A producer using commodity future to hedge its product revenue, will be required to deposit margin money.  Margin calls will require the deposit of more margin money if the price in the futures market moves against its flavour.

Tsingshan may have taken up a sizeable hedge on its production volume in the commodity future, hence normal hedging.  (If not supported by production volume, then considered speculative)  Prior to the maturity of the future contracts, the price surge against its flavour, resulting in huge trading loss on its future contracts, which triggered the margin call that need Tsingshan to top up its margin deposit.

Putting margin aside, Tsingshan is merely locking in the revenue at a future stipulated price for its production volume.  The gain or loss on the future trading largely net off the eventual product profitability. However, in the event that Tsingshan is forced to cut or reduce its future bets, due to the nonavailability of margin money to meet top-up request, then there will be real loss in its books.

PS:
Revenue from product sales recognised upon realisation (ie future event).  But the future contract has to be valued at mark to market (ie current).  If both events happened in different reporting periods, then there may be wide swing in the entity profit result.

[donmihaihai]

It happen that I do search old threads once a while to tell me whether this or that company is "dead". I am interested when people stop taking and I believe that a few investors who are doing the same thing. A part of investing is human nature, which one need to understand it which include social proof

In a way, VB doesn't have that much "liquidity" to start with. Maybe yes on certain favorite value stocks though.

Nowadays, there are many other methods to gauge this - through Twitter, Youtube or blogs which has more "liquidity" and provide better "signals".

VB is a good place because I am not looking for liquidity. I am looking companies that no one or just a few are interested in and some of these companies might be followed by investors (not traders) a long time until they give up.  Why do investor give up? share price not moving, unexcited financial results. Quite similar to your relative performance eg.

[weijian]

I am not sure how 8billion of losses would be classified as "normal hedging purposes". Under "normal hedging purposes", if you have 8bil of losses here, you are supposed to have similar gains elsewhere to largely offset it. And you are a producer of a metal that has soared in prices and made hedging losses due to soaring prices.

Nickel Market Crisis Sends London Metal Exchange Scrambling to Prevent Damage

At the center of the action is Chinese nickel titan Tsingshan Holding Group, the world’s biggest producer of a metal used in stainless steel and electric-vehicle batteries. The company, sitting on $8 billion in trading losses, said Wednesday it had secured enough metal to settle all its loss-making positions, according to a state-run media outlet.

Tsingshan has strategic importance to China’s metals industry as a major supplier of nickel and steel. Chinese regulators stepped in and called on domestic banks to help support the company, one of the people said. The fact that Tsingshan’s nickel forward contracts were for normal hedging purposes—and not speculative in nature—helped the company win government support, the person added.

https://www.wsj.com/articles/nickel-mark...1646858558

It does seem like some traders may have caught the loophole that Tsingshan had and short squeezed them.

The Nickel Market Will Be Broken Even After the LME Is Fixed

A short squeeze only works on a trader who’s unable to cover their position, forcing them to buy back contracts at ever-escalating prices in a market where supply is vanishing. Tsingshan should be immune from that problem. The company aims to produce 850,000 metric tons of nickel this year. Short interest across the entire London Metal Exchange on the eve of the squeeze amounted to not much more than half that amount. If Tsingshan’s billionaire owner Xiang Guangda wanted to avoid those disastrous costs, he simply needed to deliver nickel from his plants in Indonesia into the LME’s warehouses in Singapore and Malaysia.

That’s the theory, at least. The problem is that not all nickel is created equal. Tsingshan made its name producing not the highly purified plates and briquettes which are traded on the LME as Class 1 nickel, but nickel pig iron or NPI — lumps of low-grade metal that can be fed into electric furnaces as a low-cost way of producing stainless steel, the destination of about three-quarters of the world’s nickel. That helps explain why Tsingshan was unable to cover its trading position. While it produces plenty of nickel, hardly any of it is the high-grade sort that’s accepted by the LME.

https://www.bloomberg.com/opinion/articl...e-is-fixed

[weijian]

The New Levels…

Look at the largest lumber producers in North America, they are earning record profits, but they’re not expanding capacity. Instead, they’re using that money to pay down debt, pay dividends and buy back stock. They’re also buying each other, which consolidates the industry and leads to better pricing. Remember how little I know about lumber? Well, I know one thing; lumber isn’t going back into the old range.

Both lumber producers and consumer are in shock. The producers cannot believe how much money they’re making after decades of pain. They don’t think this is sustainable, so they’re not reinvesting. Meanwhile, consumers have a price shock of their own. They’re waiting for the pullback that never seems to happen—that’s leading to pent up demand as consumers eventually accept the new level and pass that cost on.

https://adventuresincapitalism.com/2022/04/18/21690/

[Behappyalways]

Chronic Shortages Of A Few Items Now Will Evolve Into Chronic Shortages Of Hundreds Of Products Later In 2022
https://www.zerohedge.com/economics/chro...ucts-later


S'pore hawkers raising prices by 10%, 20%, 30% & more
https://mothership.sg/2022/04/singapore-...inflation/