Nickel’s Trading Paused as Price Hits $100,000 and Some Lose Billions
The London Metal Exchange (LME) halted nickel trading and canceled all pending trades soon after the metal’s price increased by more than 250% this week. The metal with several industrial applications surged to $54,880 per ton before hitting a high of $101,365 on Tuesday. Despite slipping back to $80,000, the cost of nickel is still four times its price at the beginning of the year.
Nickel is mainly used to create stainless steel, but recently the production of electric vehicle batteries has ramped up the demand. The suspended LME contract is for high-grade metal that automobile manufacturers specifically seek.
Consequently, the exchange’s largest crisis is now this decision to halt trading and void all trades made on Tuesday. A similar occurrence happened in the 1990s when a rogue trader built up massive losses trying to dominate the copper market.
Evolving Russia-Ukraine Situation Contributes to the Closure
The unprecedented volatility in the price of Nickel which caused the LME to halt trading has been linked with the ongoing Russian-Ukraine crisis. The exchange said the Kremlin’s invasion of its western neighbor impacted the nickel market. It further cited dramatic price swings in the Asian trading hours as evidence of this development.
Furthermore, the LME, owned by Hong Kong Exchanges and Clearing, said it had decided to halt trade on “orderly market grounds”. It also warned that a closure over several days was a possibility.
“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.”
Russia produces and exports metals and grains in addition to energy. It is the world’s third-largest supplier of nickel behind Indonesia and the Philippines and accounts for 10% of global production.
Sanctions imposed on Moscow have seen a fall in the nickel supply, with demand moving to other countries. The current supply-demand dynamics are reminiscent of how banks dumped toxic collateralized debt obligations (CDOs) in the 2008 mortgage crisis.
Alongside the energy sector, which has been dealt a lousy hand since the crisis commenced, commodity markets have also been impacted. Copper, the world’s most significant industrial metal, reached an all-time high of $10,070 per ton this week. Also, aluminum got a new high, while widely used zinc is also nearing a record high.
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Chinese Tycoon Potentially Lost Billions in Short Position
Another muted reason for the surge in Nickel’s price is a vicious short squeeze that has left a Chinese tycoon in potential losses. Xiang Guangda, the founder of Tsingshan Holding Group, faces billions of dollars in potential losses after shorting nickel.
After its gamble, Tsingshan bought large amounts of nickel to reduce its short bets and exposure to costly margin calls. Although unclear, the size of the steel company’s position is believed to be at least 100,000 tons. The size of these lots has seen the LME give more time to Xiang’s brokers to meet a margin call.
A sustained increase in the price of Nickel will have a profound impact on electric car manufacturers. According to Tesla, participants in this niche already face a supply chain crisis, and Nickel’s high price would further compound production problems.
German auto manufacturers will be the worst hit due to their exposure to Russia, which supplies 44% of their nickel imports. The likes of Volkswagen make use of the metal in the production of catalytic converters with Moscow company Nornickel being a major global supplier.
In the end, electric car production may slow down in 2022, just like other sectors currently being impacted by Russia’s invasion of Ukraine.
Do you think the volatility in commodities is only going to get worse as the economic effects of the Russia-Ukraine conflict are felt worldwide? Let us know your thoughts in the comments below.