The London Metal Exchange (LME) has paused nickel trading after it reached the record price of $100,000 per tonne in an attempt to prevent traders from even bigger losses. The LME has now introduced a series of emergency measures to allow traders to defer delivery obligations on all of its main contracts, including nickel.
Nickel is crucial for the construction of both stainless steel and electric vehicle batteries. Three-month prices for nickel on the LME more than doubled on Tuesday to $101,365 a tonne, its biggest daily increase since it began trading on the market in 1987 and one of the extraordinary rises in the 145-year history of the LME.
To provide some perspective, Russia provides about 10% of the world’s nickel. Investors’ concerns are escalating as the invasion of Ukraine continues and sanctions over Russia keep on piling up.
Commerzbank analyst Daniel Briesemann was skeptical about the recent expansion in nickel’s price and stated: “We suspect that a so-called short squeeze is partly responsible for the extraordinary price surge, in addition to the concerns about supply. Some market participants who had been betting on falling prices were clearly surprised and wrong-footed by the price upswing and momentum since Russia’s invasion of Ukraine. We regard the price surge as exaggerated and expect trading to calm down again once the short squeeze has run its course. The nickel price should then fall significantly again.”
The LME is planning for the reopening of the nickel market, but has revealed it is considering a multi-day closure, given the geopolitical situation which underlies recent price moves.
The exchange group said in a statement: “The LME has taken this decision on orderly market grounds. 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.”
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said” “It seems the meme stock frenzy has now metamorphosed into commodity chaos, as traders have scrambled to try and cover short positions. Those that had bet against the metal’s rise in value, have now been forced to buy at a much higher price, creating a short squeeze. It’s likely a big margin call prompted the suspension of trading, with sharp gains forcing speculators to scramble for additional capital to put into accounts to cover the shortfall.”
Other metals were also part of the buying frenzy, just as nickel rose up, so did lead and zinc. Both metals, lead and zinc, suffered a significant increase of 9.4% and 18.4% respectively in one day.