Nickel Soars 500% on Chinese Bank Short Squeeze, Trading Suspended

LME suspended nickel trading for at least the remainder of the day Tuesday after Nickel prices roughly doubled to all-time highs Tuesday, up 500% from Friday. Nickel soared over $100,000 a ton to an all-time high on the London Metal Exchange when prices surged around $40,000 in just one hour. The move came from a short squeeze with a major Chinese bank where a unit of China Construction Bank Corp. extra time to pay hundreds of millions of dollars in margin calls. The rumor is that became billions quickly.

The war in Ukraine has fueled concerns of supply disruptions for nickel which is a key component of electric-vehicle batteries. Nickel is used in stainless steel and electric-vehicle batteries

The important part with nickel is that it tends to be more volatile; it’s a more thinly traded market than some of the other major commodities,” said Gavin Wendt, a mining analyst at consultancy Mine Life Pty in Sydney. “The supply-side was already almost at breaking point, down to a couple of weeks supply even before the political issues with Russia.”

The LME said unprecedented overnight increases in nickel prices prompted the halt, which would last at least for the rest of the day. The exchange said it was monitoring the situation in Russia and Ukraine and took the move “on orderly market grounds.”

“The LME will give consideration to a possible multi-day closure, given the geopolitical situation which underlies recent price moves,” it said.

A short squeeze hit the market, which fed on itself where, investors who had either hedged or bet on price declines rushed to cut losses in a rapidly rising market by buying back nickel forward contracts it had previously sold.

The LME contract had roughly doubled from the previous day to hit $101,365 a ton. The contract later pared some gains to trade at $80,000 a ton before being suspended.

Nickel is one of several commodities, including oil and other metals such as aluminum and palladium, that have skyrocketed in price since Russia invaded Ukraine.

Sanctions on Russia so far haven’t targeted commodity exports directly but have nonetheless made shipping firms and traders reluctant to deal in the nation’s resources. The U.S. said Monday it is considering banning imports of Russian oil, fueling concern that metals exports could also be targeted.

“The price rise is a physical-market issue which has been translated to a financial-market issue,” said Vivek Dhar, mining and energy commodities research director at Commonwealth Bank of Australia. “Traders who have short positions or who are on the wrong side of trades are trying to cover their positions” amid a tight market and elevated prices, Mr. Dhar added.

Russia accounts for 5% to 6% of world nickel supply and 17% of high-purity nickel production, according to CBA. The market was tight even before Russia invaded Ukraine, as global stockpiles had dwindled significantly from April last year, the bank said in a research note.

Source: Bloomberg

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