Metal Bulletin presents the fifth chapter of the story.


“Now I’m intrigued,” said von Resch. “But let’s go through to the library for some coffee and a brandy. Then you can tell me what you want to do.”

The theme of old money continued in the library, a huge room with paneling, bookshelves laden with leather-bound volumes and another welcoming fire blazing in the hearth. Von Resch gestured toward the books. “Apparently, this is one of the finest libraries in Austria. There are a lot of very rare old texts, and indeed a lot of stuff that fortunately escaped the book-burners in the 1930s. Somehow, my grandfather managed to protect it all.”

Serck was always hesitant in prying into what had happened to families in Europe during the 1930s and the War, but he couldn’t resist asking, “With strong connections with the Soviets, how did your family survive the Hitler period?”

“Well, it was all okay, to start with. The Molotov-Ribbentrop pact obviously put us on the right side. But then, after Barbarossa, it could have become more difficult. But my grandfather was involved with the food distribution commission by then, and my father was a very junior officer in the Italian campaign, so they managed to keep their heads above water. Also, we’re kind of out of the way down here, so maybe we were a bit overlooked. I think it was a tense time for my grandmother and my aunts, though, on their own most of the time, with my father off in the army and my grandfather travelling a lot to try and keep the food supply going. They don’t talk about it a lot, though.

“Anyway, enough of that. What’s to be? Cognac, Armagnac or Asbach?” Serck took an Armagnac, and they settled before the fire as Carlo brought through the coffee. “So, Jason, come on. Tell me what you have in mind.”

Serck paused for a moment. What he was about to propose was clearly legal, but nevertheless would also clearly be an attempt to influence the market. Even to himself he wouldn’t use the word manipulate. He was used to making judgements of people, and he’d been impressed by the Austrian from the first time he’d met him. The family story he’d heard today suggested that – if history and hereditary had anything to do with it – the von Resch genes carried a fair degree of pragmatism when it came to making money. That was something Serck could identify with. Anyway, if von Resch didn’t want to play, it would just have been a discussion idea floated over a couple of brandies.

“OK, we need to look at the issue with the nickel market. We agree that it should react as one of the battery metals, but so far, it hasn’t done so. The most significant factor, all of our research suggests, is that the global stocks of nickel continue to rise, which means the price doesn’t want to go up. Now, as you rightly say, there is no point in trying to influence producers to cut production; they won’t do it. The price is above cost of production generally, so that route is a dead-end. What we need to do is get that stockpile out of the public eye, first, and then reduce the flow of metal to prevent it building up again. Eventually, the weight of increasing demand should absorb it. What we have to do is to pre-empt that, to bring forward the natural evolution of the market. That’s how we work, by the way. We don’t try to buck the market, or to take it all on. We aim to position ourselves, and then gently influence the market to behave as it needs to do anyway. It’s just timing, as ever, and painting a picture.

“So, the first issue to address is how to deal with the existing stockpile. What’s important to grasp here is that this doesn’t have to be a dramatic change. It’s a matter of seeing the tonnage decrease, and keep decreasing. It’s the trend which is important. We have places where we can move metal out of the public eye. We take it off the LME and we put it where nobody can see it. We can do that without a problem. Frankly, to do that, we don’t really need your help.”

Von Resch sat, impassive, listening.

Serck continued: “Where we do need to work with you, though, is on the next stage. That’s where we stop the flow of new metal onto the exchange. You are the main producer currently delivering, so if you stop, then the flow pretty much dries up.”

“Yes, that’s true. But look at it from our point of view. We sell the excess metal on to the exchange because they pay us for it. If you ask us to stop delivering, that’s almost the same as asking us to cut production. We can’t afford to just let production build up at the mines or smelters. We need the money.”

“Yeah, I understand that. Just let’s go through the scheme first, then we can talk about the money. I’m not ignoring it.

“So, you stop delivering to the exchange. At the same time, you and we, through Metal-Exx, cut customers back to minimum contractual tonnages – tell them the tightening metal supply means we can’t help with any extra quantities. And all the while this has been going on, we at Leopard-Star will have been buying nickel futures. The price will go up.”

“Well, suppose other producers just fill in the gap you – we – are creating by increasing their supply into the market?”

“Can’t be done. You’re the swing producer, you always have been. That’s why the exchange stock is normally exclusively your metal. No other producer will have the flexibility in their production to do anything – at least, not until we have already got what we want.”

Von Resch picked up on the last part of that sentence. “Ah, so you see this as just a short-term game? Not a real change?”

“Hugo, I can’t answer that. I don’t know what will happen down the road. I’m confident that we can make the short term work; as long as we do that, then I’m happy to wait and see where we go from there.”

“OK, I can see the way you are thinking. But there are two issues. Firstly, can you really hide metal out of sight? And secondly – and crucially – where do Arctic Mining get the money that they would not get from sales to the exchange?”

“First, yes we can. I can find a place to put upwards of 50,000 tonnes of nickel, out of sight, out of mind. We have friends in the storage business who will do it like a shot. As long as we move it sensibly, the market will perceive that it’s gone for consumption; don’t forget, at the same time we are telling them we are struggling for quantities. As for your second point, well, that’s where I think you put your other hat back on. Stroheim can finance the metal, at an attractive rate. And instead of an LME forward sale to hedge it, Metal-Exx will make a forward purchase from you at the market rice ruling on delivery.” Serck metaphorically held his breath as he made this point. It was crucial, and equally crucial that von Resch bought it. “You don’t want a fixed price on the opening of the deal, because you also want to profit from the price going up. How you split the benefit between Arctic and Stroheim is up to you, of course.”
Von Resch stood up, and refilled their glasses. “Okay,” he said, “I think we can take this a bit further. Of course, you understand that for deal like this, I would have to speak directly to Vassily Puschkin.” (Puschkin was the oligarch who was the effective owner of Arctic Mining. He had emerged from the economic chaos created by the Soviet Union’s collapse to own a string of disparate entities in the far north of Siberia. Arctic Mining was the jewel in the crown, but he was not known for his understanding of the mining and metals industry.) “He would certainly have to have the final say on this. But I can tell you, personally, I like what I hear. If we could pull this off, effectively just by moving metal around, then it looks an attractive prospect.”

Serck settled to sleep that night well pleased with his progress. On balance, he felt that von Resch would convince the Russian to take the deal; but so far, he’d risked none of the fund’s money, so if it all came to nothing, well, that would be a shame, but would have no cost.

The next day, von Resch took Serck deer hunting across his estates. It was a good day, another excellent dinner in the evening and by the time he boarded the Leopard-Star Gulfstream at Vienna airport to return to New York, Serck was well pleased with his weekend in the Steiermark. He had secured von Resch’s confirmation that he would head to Moscow as soon as practical to discuss his scheme with Puschkin. It was in the hands of the gods, and Serck settled back contentedly for the flight.

The final chapters of the story will follow tomorrow.