The London Metal Exchange (LME) halted nickel trading and cancelled trades as prices of the metal, used in the manufacturing of stainless steel and batteries for electric vehicles, more than doubled on March 8 to over $100,000 per tonne.
The unprecedented price surge followed the massive squeeze on the world's top producer, Russia, following its invasion of Ukraine. Investors and industrial users scrambled to buy contracts on concerns of disruption of supply, leading to the largest-ever crisis in the 145-year-old exchange in decades. Brokers struggled to pay margin calls against unprofitable short positions.
Why prices soared
The West rolled out sanctions on Moscow with unprecedented speed, which left investors stripping off all Russian output from their supply and demand projections, Reuters quoted ED&F Man Capital Markets analyst Edward Meir as saying. As a result, prices went up, Meir said.
Russia is a major supplier of the metal, providing about 6 percent of the world’s nickel, according to The Wall Street Journal. Further, Russia's Nornickel is the world's biggest supplier of battery-grade nickel, making up for about 15-20 percent of the global supply, Reuters quoted JPMorgan analyst Dominic O'Kane as saying.
How much did it rise?
On March 8, LME three-month nickel, which is the primary pricing reference for the global physical supply chain, rose to $101,365 a tonne from $30,000 on March 4.
At 0815 GMT, the exchange stepped in and halted trading, suspending the contract at $80,000. The exchange said all trades conducted on March 8 up until then will be cancelled until further notice.
On the Shanghai Futures Exchange in China, nickel hit its upper limit at 267,700 yuan ($42,380.39) per tonne. It also breached the 15 percent limit early on March 8.
China's biggest futures company CITIC Futures told its clients that it would take action if nickel prices continued to jump on March 9. The Shanghai exchange could be take forced position cuts, Reuters reported.
Tycoon faces losses
The vicious ‘short squeeze’ left Chinese metal tycoon Xiang Guangda facing billions of dollars in potential losses. Guangda is the founder of the world’s leading stainless steel producer Tsingshan Holding Group. The Chinese company had been building a short position in nickel since last year, betting that the price of the metal would fall. However, when prices shot up, Tsingshan would have had to either buy back the position or post more cash to cover losses.
Although there is no information on the actual size of Tsingshan’s short position, it is likely to be at least 100,000 tonnes of nickel, Financial Times reported, quoting people familiar with the matter.
The sources said the LME was forced to halt trading when it realised that some small traders were facing large demands for extra cash to cover trades put on for clients.
