The London Metal Exchange (LME) has halted trade in nickel after prices touched more than $100,000 per tonne in a surge sources blamed on short covering by one of the world’s top producers.
The shock comes at a time when Western sanctions have threatened the supply of nickel from Russia, a major producer, marking the biggest crisis to hit the 145-year-old exchange in decades.
“The current events are unprecedented,” said the LME in a notice to members. “The suspension of the nickel market has created a number of issues for market participants which need to be addressed.”
The market panic, sparked by the Russian invasion of Ukraine, has triggered panic buying for the metal which is a key component for making stainless steel and electric vehicle batteries.
Traders have said, some traders have been struggling to pay margin calls.
According to three sources familiar with the matter at hand, China’s Tsingshan Holding Group, one of the world’s top nickel and stainless steel producers, had been building a short position in nickel since 2021, betting that prices would fall.
The price of nickel skyrocketed as Tsingshan purchased large amounts of the metal to reduce those short positions and its exposure to costly margin calls, said sources.
Both, LME and Tsingshan declined comment.
On Tuesday, the LME raised margin requirements for nickel contracts by 12.5% to $2,250 a tonne and suspended nickel trading on all venues for at least the rest of the day.
“People will be asking if this really a functioning market… This is meant to be a market of last resort and people can’t get inventories to deliver against positions,” said Colin Hamilton, managing director of commodities research at BMO Capital Markets.
The LME also deferred physical delivery of maturing contracts and announced it would temporarily stop publishing official and closing nickel prices.
“The LME will actively plan for the reopening of the nickel market, and will announce the mechanics of this to the market as soon as possible.”
Before trading of nickel was halted, the price of nickel had touched $80,000 a tonne, up by 66% on the day and up by a staggering 177% since Monday.
On the Shanghai exchange, nickel hit its upward limit in night trading at a record $42,380.39 (267,700 yuan) per tonne.
In an internal notce issued by CITIC Futures, China’s biggest futures company, warned clients that if nickel prices continued to climb on Wednesday, the Shanghai exchange’s actions could include forced position cuts.
“There’s a very big short and a very big long who’ve been sparring. And because of their sparring, it’s brutalised so many other shorts,” said Malcolm Freeman of Kingdom Futures.
Incidentally, although Russia supplies around 10% of the world’s nickel Nornickel, a Russian company is the world’s biggest supplier of battery-grade nickel at 15%-20% of global supply, said JPMorgan analyst Dominic O’Kane.
The LME is owned by Hong Kong Exchanges and Clearing Ltd.