The London Metal Exchange (LME) halted trading in its nickel market after an unprecedented price spike left brokers struggling to pay margin calls against deeply unprofitable short positions.
Nickel, used in stainless steel and batteries for electric vehicles, surged as much as 111 percent yesterday to trade briefly above US$100,000 a tonne.
The 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, while brokers rushed to collect margin payments to cover their deeply unprofitable positions.
Photo: Reuters
The material had closed up 66 percent the day before.
It pared gains to be up 74 percent at US$83,500 a tonne as of 3:10pm in Shanghai.
The market on the LME is in the grip of a massive squeeze in which holders of substantial short positions are being forced to cover at a time of low liquidity.
To give a sense of nickel’s dizzying surge, it had risen about US$11,000 a tonne over the past five years.
This week alone, it has jumped by as much as US$72,000.
“It’s going crazy,” said Jiang Hang, head of trading at Yonggang Resources Co (永鋼資源).
“It’s not reflecting any industry fundamentals,” Jiang said.
The “LME trading system is out of control and requires intervention,” or the contagion might spill over to other metals, he said.
Late on Monday, the LME allowed 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.
The LME also gave a unit of China Construction Bank Corp (中國建設銀行) extra time to pay hundreds of millions of dollars in margin calls that were due on Monday, people familiar with the matter said.
Nickel was already rallying on tight supplies even before Russia invaded Ukraine, which has sharpened fears of sweeping commodity shortages.
Higher nickel prices, if sustained, threaten to ratchet up costs for electric vehicle batteries.
Russia produces 17 percent of the world’s top-grade nickel.
“What we do know is that markets tend to overreact a little bit, they sometimes over-shoot, but in this instance, with the uncertainty of war, it’s hard to talk about a commodity being over-valued,” said Gavin Wendt, an analyst at consultancy Mine Life Pty in Sydney.
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