Small Parts Manufacturing Co, Inc.
Material Updates
As you know, Small Parts Manufacturing strives to keep our customers up-to-date on any news that we receive from our outside vendors concerning changes in material costs or related updates. In keeping with this goal, we would like to share the following information that we received from one of our outside vendors:
“As many of you, we have been bombarded with record level inflation for many of our cost inputs over recent months, with little or no advance notice. As a surface finisher specifically, we are impacted by additional significant new and existing environmental regulation costs to manage potential hazards included in materials used in our processing to add value to customer parts. We must cover our costs and continue to be environmentally responsible and meet commitments to our customers and community.
Based upon increased costs, we will be adjusting our base selling rates by 11.6% for parts we process for orders received effective Tuesday, January 3rd, 2023. These changes will not affect our minimum charges. The energy and nickel surcharges will not be increased. Part price quotes issued 30 days prior will not be revised from the existing quoted amounts.”
SPM does not plan to increase our own prices as of now. We will continue to keep you informed as we receive new updates.
Small Parts Manufacturing is dedicated to keeping our customers updated on any alerts we receive from our outside vendors on material costs and other important information.
Recently, we received the following message from an outside vendor:
“You are likely aware of the Climate Commitment Act (CCA) passed by the Washington State Legislature in 2021. The goal of the CCA is to reduce greenhouse gas emissions by 95% by 2050. The CCA includes a cap-and-invest program, which sets a limit on overall carbon emissions and requires businesses to purchase permits to combat climate change. At this point, most oil companies are planning to include this fee in the overall cost of fuel.
Effective January 2023, you can expect an increase in rack prices as we begin to implement this new mandate. Our fuel analysts estimate gas prices will increase 32 to 47 cents per gallon for the average user. Ultra-low-sulfur diesel (ULSD) will likely increase by 40 to 57 cents per gallon.
We recognize this is a significant industry change and appreciate your patience as we navigate these changes together. If you have any questions or concerns, please contact your Sales Representative.”
SPM would like you to know that as of now, we do not plan to increase our own prices. We will continue to keep you up to date as we receive more information.
We have received some updates from our outside vendors about changes in material costs over the past couple of months that we wanted to let you know about. Across the board, prices have been rising. According to one of our plating vendors, all manufacturers and services providers have seen cost increases, no matter the business.
The vendor informed us that they’ve received price increases and supply restrictions for different items nearly every day, sometimes without any prior notice. They and many others have had to adjust their prices as a result. As of the end of June, they’ve increased all of the selling prices of their parts by 18%, and they’ve adjusted their minimum charges as well.
Shipping companies are no exception. We’ve heard that they’ve had to increase their fuel surcharge multiple times because of the increase in diesel prices. Diesel fuel prices have increased by 33% since April, so as of July 1, 2022, so one of the shipping companies we work with has increased their fuel surcharge to $40. They’re hoping to see some relief soon.
SPM does not plan to change our prices as of now, but we want to keep you informed on the recent changes. We will continue to monitor the situation and let you know about any updates we receive as time goes on.
Subject: NICKEL SUSPENSION – FURTHER INFORMATION: DELIVERY DEFERRAL AND TRADE CANCELLATION
- Summary
The LME has been monitoring the impact on the LME market of the situation in Russia and the Ukraine, as well as the recent low-stock environment and high pricing volatility environment observed in various LME base metals and in particular Nickel. With immediate effect, and following the suspension of the LME Nickel market announced in Notice 22/052, the LME (acting where required through the Special Committee) has determined that it is appropriate in the circumstances to take the following actions in respect of physically settled Nickel Contracts: (i) cancel all trades executed on or after 00:00 UK time on 8 March 2022 in the inter-office market and on LMEselect until further notice (Affected Contracts); and (ii) defer delivery of all physically settled Nickel Contracts due for delivery on 9 March 2022 and any subsequent Prompt Date in relation to which delivery is not practicable (as determined by the LME and notified to the market) owing to a trading suspension in line with the process in this Notice. - Background
The current events are unprecedented. The LME is committed to working with market participants to ensure the continued orderly functioning of the market. The suspension of the Nickel market has created a number of issues for market participants which need to be addressed. This Notice is intended to address the most pressing of those issues. Further communications will be issued during the course of today, including regarding the process for reopening the market. - Cancellation of Affected Contracts
The LME hereby exercises its powers to cancel all Affected Contracts. Members with Affected Contracts will be contacted by the LME with instructions to cancel or reverse these Affected Contracts. LME Post-Trade Operations will create files containing all the details of the trades that Members will need to book to effect these cancellations / reversals. These files will be emailed to Members. - Any Member so instructed must cancel or reverse all relevant Affected Contracts as soon as practicable during the Business Day in which the instructions are issued.
- In the event that a Member does not comply with these instructions, we reserve our right to cancel the relevant Affected Contracts in accordance with the Exchange’s powers under the LME Rules.
- All cancellations will be reflected by corresponding cancellations of the Contracts under the LMEC Rules, once the cancellations have been actioned by the Member.
- Delivery deferral
All open delivery positions for physically deliverable Nickel Contracts with a Prompt Date of 9 March 2022 and any subsequent Prompt Date in relation to which delivery is not practicable (as determined by the LME and notified to the market) owing to a trading suspension, will be rolled at level Carry using a Basis price of the previous day’s Cash Official Price. - LME Clear Operations will assess long positions and short positions in affected Nickel Contracts and pair up holdings. Through LME Post-Trade Operations and the LME Relationship Management team, files containing relevant position details will be emailed to Members. Members will be required to book relevant trades in LMEsmart.
- If a Nickel Contract is not subject to deferral under this Notice, it may still be deferred (at the Member’s election) under the deferral mechanism set out in Notice 22/051, and the provisions of that Notice remain in full force and effect.
- Pricing
For the avoidance of doubt, the LME will continue to publish Official Prices and Closing Prices during this period in line with the LME’s existing pricing methodology and waterfall. Counterparty confidentiality - In relation to all matters covered by this Notice, Members are reminded of the importance of ensuring the confidentiality of counterparty details including, but not limited to, counterparty names and other identifiers. Confidentiality shall apply to all adjustments and trade bookings and cancellations so that, without limitation, any information that relates to the identity of a counterparty must only be disclosed to those personnel who, from an operational perspective, require such information in order to action the price adjustment.
- Compliance with measures
All Members must comply with the measures set out in this Notice. Any failure to comply may be considered a breach of LME and/or LME Clear Rules as applicable. - Next steps
We will issue a further Notice later today dealing with market re-opening and any measures that are deemed appropriate to ensure continued operation of orderly market. - Questions
Members should direct any questions relating to this Notice to the LME Relationship Management team at RM@lme.com.
James Cressy, Chief Operating Officer – LME Group
Cc: Board directors
Special Committee
Nickel Committee
User Committee
We wanted to bring everyone up to speed on a major development regarding nickel. Roughly one week ago, we sent out our 1Q update in which we discussed how nickel rallied to $11/LB. We were concerned it would go even higher, and we were expecting major increases in surcharges. Nickel jumped 250% higher to $50/lb in the last two days. ($100K per ton), which was an unprecedented increase. The London Metals Exchange (LME) halted trading on nickel last evening and canceled contracts traded during the overnight hours. They have now announced trading will be halted until at least 03-11-22, maybe longer. Attached are some announcements and a Bloomberg report that explains the current situation.
We do not believe the $50/lb. number will hold. There is a short squeeze going on of historic proportions. The question is, where will nickel end up once the dust has settled.
As of today, all our mills: Raw material, Finished Wire, Finished Bar, have all stopped offering material in the market. We are also seeing our master distributors not quoting. Everyone is taking a wait-and-see approach.
Until we see where nickel starts trading and we get updated offers on raw material, Vendors will not be able to quote other than unsold items in stock. We will keep sending out updates as we get them. Our goal is to make this interruption as short-lived as possible.
Bloomberg News
LME Doesn’t Expect to Restart Nickel Trading Before March 11
By Jack Farchy
The London Metal Exchange said it doesn’t expect the nickel market will reopen before March 11, after trading was suspended Tuesday following an unprecedented surge in prices.
While it implied that trading could resume on Friday, the exchange stressed that it was not announcing a firm date “given the uncertainties in the broader market.”
The exchange said that all of its clearing members had met their margin requirements in full. Earlier, it canceled trades that took place after midnight on Monday, when prices rose from around $50,000 a ton to over $100,000, and said it would calculate margin requirements based on Monday’s closing price.
“The LME understands that credit conditions in the broader commodities markets have been placed under stress due to geopolitical events and rising prices,” it said.
To contact the reporter on this story:
Jack Farchy in London at jfarchy@bloomberg.net
March 8, 2022 – 7:28 am
Bloomberg News
LME Halts Nickel Trading After Unprecedented 250% Spike
- Top producer Tsingshan under pressure to meet margin calls
- Prices spiked as short position holders scrambled to close out
By Mark Burton, Jack Farchy and Alfred Cang
The London Metal Exchange suspended trading in its nickel market after an unprecedented price spike left brokers struggling to pay margin calls against unprofitable short positions, in a massive squeeze that has embroiled the largest nickel producer as well as a major Chinese bank.
Nickel, used in stainless steel and electric-vehicle batteries, surged as much as 250% in two days to trade briefly above $100,000 a ton early Tuesday. The frenzied move — the largest-ever on the LME — came as investors and industrial users who had sold the metal scrambled to buy the contracts back after prices initially rallied on concerns about supplies from Russia.
A Chinese tycoon who built a massive short position in the nickel market is facing billions of dollars in mark-to-market losses as a result of the surge in prices, according to people familiar with the matter.
Activity in the nickel market was suspended as trading got underway in London on Tuesday, and the LME later said it would cancel all nickel transactions that had taken place earlier in the day.
The debacle will raise memories of the LME’s darkest period, the “Tin Crisis” of 1985, which saw the exchange suspend trading in the metal for four years and pushed many brokers out of business. That was driven by the collapse of the International Tin Council, a body backed by 22 governments that fell apart when it could no longer keep propping up prices.
“This is second only to the tin crisis,” said Malcolm Freeman, a broker at Kingdom Futures who began his career on the LME in 1974. Suspending trading “was the right thing to do, and my gut feeling is that they’ll probably look at canceling today’s trades too.”
Traders, miners and processors often take short positions on the exchange as a hedge for their physical stocks of metal. In theory, any price moves in the physical stocks and the exchange position should cancel each other out. But when prices rise sharply, anyone holding a short position on the exchange needs to find ever-greater sums of collateral to pay margin calls.
Traders and brokers must deposit cash and securities, known as margin, on a regular basis to cover potential losses on their positions. If the market moves against those positions, they receive a “margin call” requesting further funds — and if they fail to pay, they can be forced to close their position.
Chinese entrepreneur Xiang Guangda — known as “Big Shot” — has for months held a large short position on the LME through his company Tsingshan Holding Group Co., which is the world’s largest nickel and stainless steel producer, according to people familiar with the matter. In recent days, Tsingshan has been under growing pressure from its brokers to meet margin calls on that position — a market dynamic which has helped to drive prices ever higher, the people said.
A unit of China Construction Bank Corp., which is one of Tsingshan’s brokers, was given additional time by the LME to pay hundreds of millions of dollars of margin calls it missed Monday. The necessary payment has now been made, a person familiar with the matter said Tuesday, requesting anonymity because the details aren’t public.
CCB International Holdings didn’t immediately respond to requests for comment, while Tsingshan representatives had no immediate comment on Tuesday.
Nickel had pared some gains to trade 66% higher at $80,000 a ton before the suspension. Other metals on the LME declined after the announcement.
The LME said it was considering “a possible multi-day closure, given the geopolitical situation which underlies recent price moves.”
The suspension is for at least the remainder of Tuesday. The LME said it would calculate margin calls “for the present time” on the basis of Monday’s closing price of around $48,000.
A full default could have calamitous knock-on effects for the exchange, its members, and industrial users around the world who rely on its benchmark prices. The last time the bourse’s clearinghouse declared a default was in 2011, when ring-dealing member MF Global collapsed.
Rule Changes
The LME initially announced rule changes late Monday in response to a daily spike of as much of 90%, allowing traders to defer delivery obligations on all its main contracts, including nickel — in an unusual shift for a 145-year-old institution that touts itself as the “market of last resort” for metals.
However, the move failed to address the key driver behind the squeeze — that market participants with short positions were being forced to close them out because they couldn’t meet margin calls.
Nickel was already rallying on tight supplies even before Russia’s invasion of Ukraine, which has sharpened fears of sweeping commodity shortages. Higher nickel prices, if sustained, threaten to ratchet up costs for electric-vehicle batteries and complicate the energy transition. Russia produces 17% of the world’s top-grade nickel.
A spokesperson for Trafigura, one of the top physical traders of the metal, said it supported the LME’s decision.
Nickel prices were quoted at $80,000 a ton as trading was suspended. Other metals pared or erased gains after the announcement. Aluminum dropped as much as 6.9% to $3,483 a ton, the biggest decline since 2018.
To contact the reporters on this story:
Mark Burton in London at mburton51@bloomberg.net
Jack Farchy in London at jfarchy@bloomberg.net
Alfred Cang in Singapore at acang@bloomberg.net
I wanted to touch base on a quick market update as we close out February. As you are likely seeing, there is a lot of insanity going on in the market right now. Just this week, oil hit $100 a barrel, LME nickel reached its highest price point since 2011 due to EV strength and collapsing LME nickel stock levels. Aluminum is trading at a new record high last set in 2008. Mills continue to be overloaded, and a new round of base price increases have been released. Global logistics are still a mess, so we are seeing major delays for imported raw and finished goods. Unfortunately, based on global economic conditions, we do not anticipate these issues will get better soon; if anything, they will worsen for a variety of our end-use markets.
We will continue to leverage our mill capabilities and strategic market partners to increase output and keep our customers full. Now is the time to be looking ahead and booking future orders to help ensure product availability in the second half of 2022 and into next year. I encourage you to look at projections over the next few months.