SHAKEDOWN – Chapter I & II

As LME Week gets under way, Metal Bulletin presents a fictional tale set in the metals trading industry by Geoffrey Sambrook. Chapters III-VII will be published this week.


Jason Serck should have been feeling on top of the world. After all, he was probably the most influential man in the global metal market. Through his original fund vehicle, Leopard-Star Associates, he controlled not only Metal-Exx, the biggest – by far – trader of metals, but also, since his coup of a year or so ago, Congo Copper, a major producer of copper concentrate.

The power those two gave him was a long way from his beginnings as an FX fund manager all those years ago. As well, he’d capitalized on the unexpected lithium source among Congo Copper’s portfolio of mining licenses to set up a deal with Elon Musk of Tesla Motors and London Mayor Sadiq Khan which guaranteed the company a healthy stake in the burgeoning battery and electric vehicle business.

Pundits, analysts, Bloomberg, Reuters, CNN and the BBC all beat a path to his door when they needed an informed comment on metals, and that was increasingly often, in these days of almost constant discussion of changing energy patterns. The Jason Serck of old had rarely raised his head above the parapet and spoken publicly; now, he couldn’t avoid it. It went with the territory.

But he couldn’t help the feeling, as he relaxed back in the seat of the car speeding him southwards through the early morning London traffic, that this wasn’t how it was meant to be. He’d never set out to be an industrialist, a man running a substantial empire. He was a trader; what he enjoyed was pitting himself against the market, playing with the risk profile of the fund to achieve his purpose.

That was the kind of opportunism that had enabled him to maneuver himself into the positions where he had been able to absorb Metal-Exx and Congo Copper. But that didn’t mean he could just re-invent himself as a corporate king. He missed the constant pressure of trading the markets more than he had ever expected to do. Since concluding the Congo Copper and Tesla lithium supply deal, he had been searching the market for a new trading opportunity. Reverting to his old self as an FX fund manager, he had played the euro/sterling Brexit game, with pretty good success, meaning that the numbers he was currently reporting to his investors were satisfying. That story wasn’t played out yet, and the analysts and traders at Leopard-Star in New York were still deeply involved in the trade, with further substantial gains expected to flow from it.

The meetings and negotiations with Musk over lithium, though, had convinced Serck that the next big shift in global technological and economic development was going to be an enormous increase in the part played by electricity as the prime source of energy. It wasn’t just vehicles, it was the whole question of the storage of power, once it had been generated. He had a small long-term trade on, differentiating between oil companies; long of those, like Shell, who were embracing the opportunities offered by renewable energy and battery storage and short of those who blinded themselves to anything except the power of oil. But that trade was a slow burner, something in the back pocket for the future. What he was looking for was an opportunity for a sharp movement, and he had had his analysts trawling the metals markets to see what they could put forward.

Lost in his thoughts, he had not really registered that they had by now passed through the sprawl of suburban London and were sitting in the outside lane of the M23 motorway. Their destination was in the South Downs, just near the small town of Lewes. It was an annual outing for Serck. One of his well-heeled British investors regularly invited him for a day’s partridge shooting among the hills and valleys overlooking the English Channel.

“How much longer have we to go?” he asked the driver.

‘Oh, about half an hour, I should think, sir. The traffic’s pretty light. May be a bit as we pass Gatwick, but shouldn’t be anything to trouble us.”

Serck looked at his watch – 7:45. “I’ll be the first there, then, I should think.”

The driver laughed. “Well, that’s better than being late, sir. Time for an extra coffee before the others get there.” Nevertheless, when there was a gap in the traffic, he pulled across into the inside lane and dropped his speed from 85 miles an hour to a legal 70. “Looks as though you’ll have a nice day for it.” The sky was mottled with puffy white clouds.

“Mmm. I hope there’ll be a bit of wind up in the hills. Makes the birds a bit more challenging.” He settled back to watch the countryside flashing past.

It was the last drive before lunch. The line of guns were ranked along a narrow gully right up at the top of the Downs. To their left, they could see the Channel and the line of chalk cliffs known as the Seven Sisters stretching away towards Beachy Head and to the right was the broad valley of the River Ouse. The wind had got up, and blew gustily down the gully. As the birds came over the top of the ridge, it caught them, accelerating their flight. Serck put up his gun, but as he fired, the wind caused the partridge to curl away from him, and he missed. It was a difficult drive, and he could see along the line that a lot of birds were flying past the guns unscathed. As it went on, he hit a few, and then a perfect left and right – two birds with two successive cartridges. As he went to reload, the horn marking the end of the drive sounded. He gathered up his things and started off back towards the Land Rovers.

“That was a nice finish to the drive for you,” called the next man down the line, as he drew level. ‘Very impressive. They were difficult birds.”

“Yeah, thanks, I was pleased with it,” replied Serck. “I’m Jason Serck, by the way. I don’t think we’ve met yet.”

“No, I arrived very late – too late for breakfast, and then I’m afraid I had to take a phone call during elevenses, so I haven’t really had a chance to speak to anyone much yet. My name’s Hugo von Resch. It’s nice to meet you.” He held out his hand for Serck to shake.

He spoke with a suspicion of a central European accent. The two of them walked on together, down towards the transport. Their host, Serck’s investor, caught them up. “Ah, good, you two have met. I wanted to be sure you did; I think you may have some interests in common.” The other two looked quizzically at him, and then at each other. “Well, Jason, you’re a manager of commodity funds and a big wheel in the metals industry these days, and Hugo is the chairman of the European sales operations of the Arctic Mining Company. You sell copper and nickel, Hugo, don’t you, and Jason uses my money to invest in things like that.” He laughed.

Von Resch smiled. “Well, as always, Ollie exaggerates what I do. I’m actually a banker from Vienna, but I’ve always been quite involved in business in Russia. So Arctic Mining invited me onto their board in Zug as a representative of the banking consortium, and I stepped up to chairman just a month or so ago. I very much suspect you know more of metals than I do. I don’t have an executive role, really. I’m just there to make sure we keep everything running smoothly. But we have of course heard of your fund, and indeed we have quite extensive dealings with your Metal-Exx company. I think you are one of our major customers, certainly as far as merchants are concerned. But this is a good chance for me. At lunch, you must tell me your thoughts for the metals. It’s not often that I get to talk to the most influential man in the business.” He laughed, and clapped Serck on the shoulder. “Come, this wind is getting a bit cold. Let’s get into the Land Rover.”

Oliver Freeman’s family had owned the estate for generations and lunch was a grand affair in the (mostly) Georgian house nestling against the foot of the Downs. Serck knew half a dozen of the other guns from previous years, but he made a point of sitting with von Resch. Really, Serck never switched off from his business, and however much the Austrian may play down his role at Arctic Mining, there was still a chance of picking up useful information.

It was gone 4:30 by the time Serck got back into his car to return to London. The traffic through the suburbs was horrendous, and the journey took well over two hours. He dined that evening with a couple of board members of Anglo-American, and the conversation supported the idea that had started to form in his mind as he had been speaking to von Resch. Back in his hotel room, he sent a long email to his senior analyst in New York with a series of questions. Finally, before going to bed, he called Max Eisenstadt, the head trader and de facto CEO these days of Metal-Exx. It was way past midnight in Geneva, but hey, the man earned enough to be on call.

“Max, I want you get for me details of all the business we do with Arctic Mining. I’m guessing it’s pretty much all nickel, but there may be some copper, I suppose, or maybe cobalt as well? Anyway, whatever it is, I want to know the size and value of whatever contracts we have. I’m flying home tomorrow, so email it all to me, please.”

Eisenstadt was unfazed. “Sure, Jason, it’ll be with you by the time you land. We do quite a lot, you know. They’re our biggest nickel source, and I’m sure we have cobalt contracts with them. Don’t think there’s any copper, though. But anyway, I’ll get the details to you. Have a good flight tomorrow.”

Serck faced the traffic through the northern suburbs the following morning, as the car took him to Luton to board the Leopard-Star Gulfstream. He promised himself they’d use City Airport for convenience each time he came to London, but each time he baulked at the landing fees. He may be a mega-millionaire, but he still had some red lines on expenditure. On the flight, he sat deep in thought. Yesterday’s shoot looked like it might turn out to have been very useful, as well as fun.


Back in his Fifth Avenue offices the next day, Jason Serck sat reading the research his analysts had put together. He was looking at the balance of metals used in the latest batteries, both for vehicles and domestic power storage. It was a subject he was fairly familiar with in general, with the knowledge he had gathered during the lithium deal and supply negotiations with Tesla, but von Resch had sparked his interest in a different angle. He knew that both nickel and cobalt were integral components of current lithium-ion batteries, but the Austrian had pointed out the strangely different paths the prices of the two metals had taken in recent months. Cobalt was rising fast, and creating a lot of interest, not least in the hybrid fund-cum-company Cobalt27, recently launched on the Toronto Stock Exchange. Nickel, though, languished, the price seemingly very reluctant to react to what should be good news for the metal, as increased demand for batteries should have translated almost directly into metal demand. It wasn’t happening, though, as von Resch had pointed out. Arctic Mining were benefitting from their cobalt production, but nickel results were pretty stodgy. He called his head trader in.

“Ed, sit down. Do we have any position in nickel at the moment?”

“No, we keep an eye on all the metals for the house discretionary account, but there’s been no reason to get involved in nickel.” He pointed to the papers on Serck’s desk. “I’ve read that stuff from the analysts as well. They’re pretty clear in their conclusion that until the stock starts going down, there’s not much price potential, despite all the hype.” He shrugged his shoulders. “The combination of the stainless market and the way the Philippines keep churning out nickel pig iron and shipping it to China effectively puts the lid on the thing. The price isn’t low enough to persuade any of the major producers to cut back production, so it just sits around the same level. Eventually, something will change, but until we can see which way it’s gonna break, there’s nothing for us.”

“Mmm. Yeah, that seems to be the conclusion the guys have reached. But, you know, if you look simply at the battery issue, then nickel should be performing a lot better.”

“Jason, I agree, but only up to a point. All that stuff is great for the future, but the problem is with the here and now. The LME stock doesn’t want to go down, so there’s no pressure on the price to rise. Right now, there is no suggestion of a squeeze on supply, so while we can probably suggest higher prices in five years’ time, it’s very difficult to get excited about the immediate future.”

“Yeah. All of that’s true. But I keep looking at cobalt and wondering if we shouldn’t expect the same.”

“Cobalt’s different because it’s a much smaller market. It’s a by-product, it mostly comes from an unstable country and there are a few traders that have a real disproportionate influence. It’s much easier to control than nickel. Come on, Jason, you don’t need me to tell you all this stuff. You know it.”

“But what if that stock figure started to come down? That’s the real issue. Any sign that the supply/demand picture was changing, moving towards a tighter position, and nickel would move like cobalt. The battery story is the same for both of them.”

“But there’s no sign of that happening. Sure, if conditions were different, then the market would be different. But that’s not a particularly helpful thing to say; the market is how it is.”

“Ye-es. Well, I’m inclined to begin building a nickel long. I just think it’s time. I can sense the scent of a change.”

Ed Sherman had been with Serck for a long time – almost from the beginning. He knew how it worked at Leopard-Star: everybody could have their say in the discussion before opening a new position or taking profits from an existing one (or indeed cutting losses). Serck would always hear them out. But he made the final decision – always. That’s what the investors paid their management fees for. And once the decision had been made, they were all expected to come on board with it.

“Okay,” he said. “If that’s what you want.”

“It is. Slowly and gently for the moment – there’s no rush. Just start building an LME long; push it out between three and six months, for the moment.”

“And physical metal as well?”

“No, just LME.” That was unusual, and Sherman raised his eyebrows. As a rule, Serck’s style was always to benefit from the leverage that a physical position held in tandem with the LME could give him. “No, we don’t need the physical for the moment; that’ll be done differently.”

The phone lying on the desk trilled. Serck glanced at the caller ID and gestured to Sherman that he should leave. “Just remember, Ed, no particular hurry; we’ve got time on this one.”

As the door closed, he carried on speaking on the phone, “Max, hi, thanks for the nickel information. We’re actually going to start doing something here, but I need you guys involved as well. When I look at the contracts, it’s a pretty clean, balanced book, right?”

“Yeah, sure. There’s not really any speculation in it; we’re buying from producers and delivering in to the consumers. Just a nice, regular well-managed business.”

“Yeah, well, I want to start to unbalance it a bit. I want you to delay deliveries as much as you can, and where there are tonnage options, I want you to deliver only the minimum.’

“Well, we can do that, of course, within the constraints of the contracts, but I don’t really see the point. As I say, it’s a nice, healthy business. What benefit do we get out of screwing around with the customers like that? They like buying from us because we’re a nice stable western company, and they see us as more reliable than some of the producers. Why would we want to mess with our reputation like that?”

Max Eisenstadt didn’t have the long experience of working
or Serck that Sherman did. For him, it was only a couple of years since the take-over. He was less tuned in to the single-man decision: Metal-Exx had traditionally been far more collegiate in its workings.

“We’re doing it because that’s how I want it, Max. It will suit my purposes.”

Eisenstadt tried again. “It took us a long time to build a reputation, I don’t want to see it spoiled.”

“OK. I understand your point of view, but you will do it how I say. I’ll be over in Europe again shortly and I’ll give you the background. For now, just do it. I’ll speak to you later, Max.”

Over in Geneva, Eisenstadt was left staring at a dead telephone receiver. He shrugged, and called out to the trading room to the head of nickel trading. Time to start doing the boss’s will.

Serck dialled an Austrian mobile number.

“Hugo? It’s Jason Serck. I find I shall be near Vienna at the end of next week and I wondered if I could stop by to see you, for a chat?”

“Of course. I shall be in Vienna again on Friday. Why don’t you come then, and then come down to my family home for the weekend? It’s a couple of hours drive from Vienna, so you could stay Friday and Saturday night, and leave on Sunday evening. Would that suit?”

Absolutely perfect for the conversation I have in mind, Serck thought to himself. What he actually said was, “That would be wonderful. I look forward to it. I’ll let you know when I should arrive in Vienna.”

Chapters III-VII will follow daily.

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