Here comes chapter IV of Geoffrey Sambrook's fictional metals trading tale.


As they sat down to dinner half an hour later, von Resch said: “So, Jason, we’ve talked a lot about my family, and Russia, and business in the east and all sorts of other things. But I don’t think you came here for that. You said you had an idea that could be good for both of us. How about we talk about that now?”

“Well, yes, I think we may have a common interest at the moment. But first, let me just go back a bit. For a long time now, my fund has been focused almost totally on metals. That wasn’t always the case. I began as an FX fund, but then I started to get sucked into metals, originally back in the early 90s through the Kanagi affair. I got to see that there was a lot of potential in that asset class, and also that the space was a lot less crowded. We’ve done well over the years, but our success has caused others to look as well.” He smiled. “Just like everywhere else, if you’re successful, you attract competitors. So things have got tougher. That’s not a complaint, by the way – it’s just to say where we are. In the last few years, the opportunities for trades became fewer and fewer, and frankly we had to do something else. We could have looked at other markets – in other words, use our expertise elsewhere – but in fact we decided to stick with metals, but broaden our scope. I’m sure you’re aware that a couple of years ago, we took over the Metal-Exx company, and then more recently we absorbed Congo Copper.

“Those two acquisitions have made us big players in the physical metals business; we’re no longer just investors and speculators, we’re now right at the heart of the global metal trade. So we use that position to give us trading opportunities. Now, Metal-Exx is the conduit, if you like, the route into the business. Congo Copper brought us a particular chance; it’s potentially one of the world’s major producers of lithium. Now, for me, the big opportunity in metals right now is with those that are essential to the growth of electric vehicles and power storage. That’s where the money’s going to be – battery metals.”

He paused for a moment, and took a mouthful of wine.

He resumed. “So we have production of copper and lithium, and we trade nickel and cobalt, but we don’t produce either of those. We believe that those four metals are the ones with the best potential to see substantial price rises right now. Of course, I also fully accept that this is not a certain bet, because battery technology will develop, and maybe other metals in the end will prove to be the winners. But for us, today, the potential is in copper, cobalt, nickel and lithium, and that’s where we are focusing our efforts.”

“I’m not really a metal man, but that seems a pretty fair analysis to me. And wearing my Arctic Mining hat, it all sounds pretty good. We produce three out of your four preferred metals, so we should be well-placed to benefit.”

Serck sat back in his chair. “Yes, I think you should.” He gestured with his hands. “But let me carry on a bit further. So we know the four metals we believe we should be involved in. Well, one way or another, we have a position in each of them, from the physical side. But now we have to begin to leverage that physical position into the terminal markets – or paper trades. To do that, though, we have to look at the possibility for each metal individually. Where we are a producer, well, in a way things take care of themselves. It’s a matter of managing the pricing periods – that’s what the guys at Congo and, particularly, Metal-Exx do: it’s their job. So, copper – I’m happy with where we are. Lithium – it’s not a trading metal, anyway, and the deal we set up with Tesla and the Mayor of London a year or so ago will put us in a good position which can only get better. That leaves cobalt and nickel, where we don’t produce but there is a market we can trade. Your Russian friends produce both of those – so do you have any comment?”

Von Resch finished chewing a mouthful of wild boar and took a sip of wine. “Well, as I said before, I’m no metals expect, but I do see the contracts going through the sales company. Quantities of both are pretty healthy at the moment, but the cobalt price has been much more buoyant than nickel. It’s not far off double where it was this time last year, whereas nickel has barely gone up at all. I know our market analysts have been looking at it, but simply put, the nickel price has been lagging.”

Serck flicked his fingers and pointed across the table at his host. “Bingo. Hugo, you got it exactly. Two products, both with the same exposure to the battery industry. The price of one rockets, the other stays the same.”

“But they’re different markets, surely. Batteries are only the demand side of the picture – on the supply side, the two markets are very different. I guess nickel is a much bigger market.”

“Sure, I get the differences. Cobalt is a by-product, it’s a pretty small market, and, crucially – and this is the bit that matters – it’s still pretty tightly controlled by a small number of traders, who have a far greater influence than any nickel trader does.” He took another sip of his wine. “That’s all generic – it’s just the way the two markets are. But just now, there is another very important point. Look at the relative levels of stock available to the market. Cobalt – all the signs are that the market is balanced, so that the expectation of increased consumption by the battery producers acts to help prices move up. Nickel – LME stocks keep rising, maybe not dramatically, but sufficiently so that anybody who needs metal can be pretty confident it’s available. A lot of that situation is down to the availability of nickel pig iron for China. Consumers there happily buy that product from Indonesia or the Philippines, which means that the metal producers have been letting their metal flow onto the LME. Well, I can understand that; prices may not be great, but they’re kind of comfortable, and there’s always the expectation of increasing demand. So what not just let things ride? But I think there is another game to play.”

Von Resch laughed. “Jason, I hope you’re not going to suggest that we – Arctic Mining, I mean – should cut our production to help the price up to the benefit of you and a handful of other speculators. We may have taken that route in the past, but we’re not going to do it again; I can tell you that, even though I’m not a metal man. We never got the benefit of that game in the past, and we’re not going to get our fingers burned again. So, it’s great to see you here at my home in the Steiermark, but if that’s what you want to persuade me to do, then we may as well finish the conversation cordially and amicably now. That kite isn’t going to fly.”

Serck smiled back. “I may have looked at games like that in the past, but I’m a producer as well, now, with Congo Copper, and I appreciate that that’s not a great strategy for a metal producer. No, I think there is a much better way we can both benefit from the current state of the nickel market.”

The story continues tomorrow.

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