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Handling Stock of Fickle Nickel

Matjaž Matošec - 3 March 2016

What to do with a stock of nickel alloys at times of low nickel price: sit on it or sell it? A recent LinkedIn discussion provides some clues to this conundrum.

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Mr Matjaž Matošec
Matjaž Matošec is Editor of Stainless Steel World News and Manager of the Stainless Steel World Conference.
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“What do you do, as a stockist, with a large stock of nickel-based alloys purchased at a much higher price than the current market value? Do you keep sitting on it in the hope that prices will recover or do you sell it? And why is the preferred option better than the other one?” This question, posed on the social media platform LinkedIn, recently spurred an interesting discussion among the members of the Stainless Steel World Group. While all recommending that one should never stop selling, they offered some further advice on how to deal with the current nickel price situation. The following is a selection of responses which, for the sake of brevity and clarity, have been shortened and edited.

“We have been taught the first lesson in the trading business: keep selling at the market price and keep maintaining your stock inventory as per your capacity to invest. This is better because you lose money on stock purchased at higher prices, but you buy at lower levels and maintain the stock, which eventually is better than holding higher-price stock. You don’t get stagnant or financially crunched. If you don’t sell at market levels, you cannot buy new inventory and eventually you wait for the right time to sell, which may come only after you need to sell your company due to financial trouble.”

“Some companies are buffering their operational result with an inventory value variation per trimester. This helps sort out the performance for operation and ‘sales’ and keep sell at market levels and trends. Depending on your fiscal law, you can ‘take a bath’, sort of overwrite, the following year and revise your material price on hand, while writing a loss each month and each trimester to absorb in 12 months the difference in value (2.6 $/lb real, sell at 1.8 $/lb, absorb the difference over a legal period). This helps to be back in the game / in the market and keep the pump turning in the right direction. Keep selling at the market price. . . You have to be able to sell and replace with current material.”

“I agree! You need to keep buying and selling according to the market price! If the price increases you will have material bought at lower prices too!”

“Buying and selling at the market price is all very well but in a long-term price fall you are on a hiding to nothing, whereas in a long-term rising market you become a hero. Our solution was for exposed (unpriced in forward sales) nickel stocks to be hedged by forward sales contracts on the LME. If the nickel price drops, you buy back your LME contract at the lower price and offset your stock loss. If the price rises, you buy back at a higher price and offset your gain.”

To read the full debate and participate in future discussions, join the Stainless Steel World Group on LinkedIn.

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