LME nickel trading halted due to chaotic market resumption

FILE PHOTO: Traders work on the floor of the London Metal Exchange in London, Britain September 27, 2018. REUTERS/Simon Dawson

March 16, 2022

By Pratima Desai, Zandi Shabalala and Eric Onstad

LONDON (Reuters) – The London Metal Exchange (LME) suspended nickel trading on its electronic system shortly after it reopened on Wednesday after technical problems allowed a small number of trades to be executed below the new daily price limit.

The nickel market was suspended on March 8 after China’s Tsingshan Holding Group bought large quantities of nickel to reverse bets on lower prices, sending the metal up more than 50% to over $100,000 a ton, sources said.

To prevent disorderly trading when the market resumes on Wednesday, the LME has set trading limits of 5% above or below the last close prior to the suspension.

“When the market opened (the electronic system) it found an opening price of $45,590…for 3-month nickel,” the LME said in a member’s release. “Unfortunately, due to a system error, LMEselect allowed a small number of trades to be executed below this lower daily price limit.”

The exchange said all nickel trades executed on LMEselect, its electronic trading system, at the lower daily price limit would remain, but those below would be cancelled.

In addition to suspending nickel trading for the second time in its 145-year history, the LME canceled all deals on March 8 and extended deadlines for those obliged to deliver physical metal under their contracts.

The price of nickel, used to make stainless steel and a key material for electric vehicle batteries, had been rising steadily in Ukraine before the conflict.

Russia accounts for about 10% of world nickel production and traders feared supplies could be curtailed by Western sanctions against Moscow.

Graphic: LME vs. Shanghai nickel prices in US dollars per tonne

Nickel trading continued on the Shanghai Futures Exchange while the LME contract was suspended. It was trading at the equivalent of $34,041 per tonne before the LME opened on March 16.

“The nickel market has been tight for some time and prices have risen this year,” said a metal trader. “The Russia-Ukraine crisis gave it extra impetus.”

One of the main reasons nickel trading has resumed is that Tsingshan this week reached an agreement with a syndicate of banks that they will not pay back or close out their nickel positions on the exchange.

“The LME notes … that a major client of the market has now released details of its support for a syndicate of banks, which may indicate the potential for further disorderly conditions could be mitigated,” the exchange said.

The LME, the world’s oldest and largest industrial metals market, is owned by Hong Kong Exchanges and Clearing Ltd.

(Reporting by Pratima Desai; Editing by Edwina Gibbs and David Clarke)