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LME forced to halt nickel trading and cancel deals after prices surpassed $100,000

FILE PHOTO: A view shows nickel sheets at Kola Mining and Metallurgical Company in Monchegorsk
FILE PHOTO: A view shows nickel sheets at Kola Mining and Metallurgical Company (Kola MMC), a subsidiary of Nornickel Metals and Mining Company, in the city of Monchegorsk in the Murmansk region, Russia, February 25, 2021. REUTERS/Evgenia Novozhenina

March 8, 2022

By Eric Onstad

LONDON (Reuters) – The London Metal Exchange (LME) was forced to halt nickel trading and cancel deals after prices doubled to more than $100,000 a tonne on Tuesday, which sources say is due to covering short selling by one of the world’s leading producers.

The LME’s shock came as Western sanctions threatened supplies from major producer Russia, marking the biggest crisis to hit the 145-year-old exchange in decades.

In the 1990s, a renegade Sumitomo dealer tried to dominate the copper market, and the tin trade was shut down for five years in the 1980s.

“Current events are unprecedented,” the LME said in a statement to members. “The suspension of the nickel market has created a number of issues for market participants that need to be addressed.”

Amid a market panic sparked by Russia’s invasion of Ukraine, buyers are scrambling for the metal, which is critical to making stainless steel and electric vehicle batteries.

Traders said some position holders also had difficulty paying margin calls.

China’s Tsingshan Holding Group, one of the world’s largest nickel and stainless steel producers, has built up a short position in nickel since last year, betting prices would fall, three sources familiar with the matter said.

Prices skyrocketed as Tsingshan bought large quantities of nickel to reduce those short bets and the risk of costly margin calls, they said.

Tsingshan and the LME declined to comment.

The LME increased margin requirements for nickel contracts by 12.5% ​​to $2,250 per tonne and suspended nickel trading on all trading venues for at least the remainder of the day.

The LME announced that all trades from midnight to 8:15 a.m. Tuesday, when trading halted, would be voided, adding that it was considering a multi-day shutdown.

“People are going to wonder if this is really a working market… This is meant to be a market of last resort and people can’t deliver holdings against positions,” said Colin Hamilton, managing director of commodity research at BMO Capital Markets.

The LME also postponed physical delivery of maturing contracts and announced it would temporarily stop publishing official and closing nickel prices.

“The LME will actively plan the reopening of the nickel market and will announce the mechanisms for this to the market as soon as possible.”

PRICES DOUBLED IN HOURS

The three-month nickel price on the LME more than doubled to $101,365 a tonne before the LME halted trading on its electronic systems and open scream ring.

Nickel had pared gains to $80,000 a ton when trading halted, up 66% on the day and a staggering 177% since Monday.

In China, the Shanghai Futures Exchange levied fees on nickel trading and urged investors to “deflect risk, invest rationally and work together to maintain market stability.”

Nickel on the Shanghai Stock Exchange hit its upside limit at a record 267,700 yuan ($42,380.39) a tonne in overnight trade and also hit the 15% limit early Tuesday.

CITIC Futures, China’s largest futures firm, warned clients that the Shanghai Stock Exchange could take action, including forced position cuts, if nickel prices continue to rise on Wednesday, an internal Reuters statement showed.

MARKET FIGHT

The explosive gains, which have seen prices quadruple over the past week, come as two major players came face to face, said Kingdom Futures’ Malcolm Freeman, who declined to identify them.

LME data shows that a company controls between 50% and 80% of LME stocks.

“There is a very big short and a very big long that are sparrings. And because of their sparring, so many other shorts are being brutalized,” Freeman said.

Some small industrial users have been caught in the crossfire after taking positions to receive physical delivery but then being hit by margin calls costing millions of dollars, he added.

Uncertainty caused by Russia’s invasion and resulting sanctions has added to an already bullish nickel market due to low inventories, which have halved on the LME since October.

Not only does Russia supply about 10% of the world’s nickel, but Russia’s Nornickel company is the world’s largest supplier of battery-grade nickel, accounting for 15% to 20% of the world’s supply, said JPMorgan analyst Dominic O’Kane.

The LME is owned by Hong Kong Exchanges and Clearing Ltd.

(Additional reporting by Praima Desai and Zandi Shabalala in London, Eileen Soreng in Bengaluru, Meg Shen in Hong Kong, Emily Chow in Beijing; Editing by Jason Neely)

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Caroline Bleakley

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