POSCO Co. Ltd., the world’s fifth-largest steel maker, dismissed as “nonsense” a report that it had made a huge, money-losing bet that nickel prices would fall on the London Metal Exchange.
The Wall Street Journal reported on Monday that the South Korean steel maker was struggling to cover a 10,000 tons short nickel position on the LME and was short an additional 20,000 tons on the physical market.
Short positions are bets a commodity will decline in price.
“POSCO is not a speculator. The company’s demand for nickel in making stainless steel is only 70,000-80,000 tons a year. Such a large short position is nonsense, considering the company’s real demand for nickel,” said a company official who declined to be identified.
He said the company had, in the second quarter of this year, taken a less-than-1,000 tons short position on the LME, counting on a correction in global nickel prices.
A POSCO spokeswoman in Seoul said by telephone the company’s short position on the LME was less than 1,000 tons.
“We also don’t have any short positions on the physical market,” she said.
LME nickel was at $26,800 a ton, up $100 from its Friday close, when the metal hit an intraday record high of $27,300 a ton.
A total position of 30,000 tons would be huge, given that LME inventories stand at just 5,814 tons – and only half of that is freely available. That would make it very difficult for POSCO to cover its short positions.
Global prices of nickel, used as an anti-corrosive additive in making stainless steel, have almost doubled this year on soaring demand and dwindling stocks.
Shares of POSCO closed up 0.4 percent at 233,000 won as analysts shrugged off the report, compared with a 0.2 percent gain in the broader market.
“I think POSCO does not have such a large short position. LME prices should have soared if POSCO has to cover a large short position,” said Kim Kyung-joong, an analyst at Samsung Securities.
“Also, the losses from less than 1,000 ton of short position would not seriously hurt POSCO.”
“We estimate POSCO’s loss on the nickel short would be $9 million, based on an LME price of $26,000 a ton now and $16,000 a ton in April,” said Lee Eun-young, an analyst at Mirae Asset Securities. “This doesn’t appear to be large.”
Soaring nickel prices
But a continued rise in nickel prices would put pressure on the South Korean steel maker, experts said.
August traditionally is a quiet month for stainless steel makers, but many are still going full throttle this year.
In addition to low stocks and strong demand from stainless steel makers, nickel prices are staying firm after a strike at Inco, which began shutting down production at the end of July at its 54,000 tons-per-year, Voisey’s Bay nickel mine in Canada.
Nickel accounts for about 80 percent of the cost of making the popular 300 series of stainless steel.
POSCO, which consumed 90,000 tons of nickel last year, is trying to cut its nickel use to 80,000 tons this year because of soaring nickel prices. It wants to focus on the 400 series of stainless steel, which uses very little nickel.
The steel maker also plans to invest $352 million in two nickel projects with New Caledonia’s Societe Miniere du Sud Pacifique SA in an effort to cut purchasing costs of raw materials.