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Tuesday, September 26, 2023

LME Halts Nickel Trading Again on Technical Issue Soon After Reopening

A week after nickel hit historic levels before being suspended, the London Metal Exchange (LME) resumed trading of the base metal, but halted electronic transactions once again soon after the market reopened.

Pointing to a technical issue, the 145-year-old exchange said on Wednesday (March 16) that its LMEselect platform allowed a small number of trades to be executed below the daily price limit of 5 percent that it has put in place. Nickel prices were trading at US$45,590 per tonne when the LME restarted nickel trading.

“All nickel trades executed on LMEselect at the lower daily price limit will remain,” the exchange said in a press release, adding that it is investigating the issue. “The small number of nickel trades executed on LMEselect below the lower daily price limit will be canceled.”

Nickel prices climbed to an unprecedented level of more than US$100,000 on March 8, up more than 250 percent in two days, largely on the back of a short squeeze. The largest-ever move seen on the LME was attributed to the massive short position held by Chinese tycoon Xiang Guangda, who controls the world’s largest nickel producer, Tsingshan Holding Group, and was facing billions of dollars in mark-to-market losses.

The exchange, which has now suspended nickel trading for the second time in its history, later canceled all transactions done on March 8. Following criticism for its decision, the LME defended the suspension of nickel trading saying the market had become “disorderly” and prices did not reflect the physical market.

On Monday (March 14), the exchange said it would resume trading of nickel, which it had suspended “against the backdrop of widely reported large short positions (originating primarily from the OTC market), combined with geopolitical news-flow and a background environment of low metal stocks.”

The call to restart the nickel market also came after China’s Tsingshan reached a standstill deal with banks, which agreed to not make margin calls on or close out the producer’s nickel positions on the LME.

“As an integral feature of the agreement, there is provision for the existing hedge positions to be reduced by the Tsingshan group in a fair and orderly manner as abnormal market conditions subside,” Tsingshan said.

Additionally, state-backed Shanghai Securities News said the Chinese company has signed a deal with two companies to swap its nickel products with a purer form of the metal, helping Tsingshan to close out its positions on the LME, Reuters reported. Tsingshan cannot trade its products, nickel matte and nickel pig iron, on the exchange, which only accepts nickel cathodes, pellets, briquettes and rounds for physical delivery.

On Wednesday, to prevent a chaotic nickel market reopening, the LME established a 5 percent trading limit above or below the last closing price before it halted trading. But nickel prices fell almost immediately.

“It is reasonable to expect volatility in the nickel price once trading recommences,” Andrew Mitchell, Wood Mackenzie’s director of nickel research, said in a note last week. “But for the sanctity of the metal, and indeed the LME, the new procedures need to find acceptance and work to prevent such a situation occurring in the future.”

Nickel is used mainly in stainless steel, but has been gathering attention for its use in electric vehicle batteries. Before the nickel market moves seen this past week, prices were already expected to remain strong, according to the nickel outlook from many analysts. Nickel stocks have also seen price gains so far this year.

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Securities Disclosure: I, Priscila Barrera, currently hold no direct investment interest in any company mentioned in this article.

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