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Thursday, December 7, 2023

Nickel Price Hits Record US$100,000 on Short Squeeze, LME Suspends Trading

Nickel doubled in price to hit a record level of US$100,000 per tonne before the London Metal Exchange (LME) decided to suspend trading on Tuesday (March 8).

The base metal, used mainly in stainless steel, but gathering attention for its use in electric vehicle batteries, was up an unprecedented 250 percent in two days on the back of a short squeeze.

The largest-ever move on the LME kicked off as investors’ worries over supply climbed following Russia’s invasion of Ukraine. Russia is a top nickel-producing country.

“Nickel is clearly trading in crisis mode,” ING senior analyst Wenyu Yao said in a note. “Market positioning could be the trigger, but the industry has long faced structural issues.”

Nickel prices were 66 percent higher, at US$80,000, when the LME decided to suspend trading for at least the rest of the day. Earlier on Tuesday, nickel had soared to a record US$101,365 ― 111 percent higher than its closing price on Monday (March 7).

The 145-year-old exchange had been monitoring “the effect of the evolving situation in Russia and Ukraine,” saying it is clear the nickel market in particular has been affected. The LME later said it would cancel all nickel transactions that had taken place earlier in the day.

The latest price increase has been attributed to the additional time given to China Construction Bank, a big state-owned lender, to make payment on margin calls it missed on Monday (March 7). Payments have now been made.

Additionally, Bloomberg reported that Chinese tycoon Xiang Guangda — who built a large short position in nickel futures and controls the world’s largest nickel producer, Tsingshan Holding Group — is facing billions of dollars in mark-to-market losses.

Low inventories have added volatility to the market, with stocks of nickel in LME-registered warehouses standing at 75,012 tonnes, their lowest point since 2019.

“Fundamentals, though supportive of stronger prices, do not justify this frenzy,” Yao said. “It remains to be seen how this crisis ends. However, the market has long been faced with structural issues.”

Nickel prices were already expected to remain strong in 2022, according to the nickel outlook from many analysts. Nickel stocks have also seen share 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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