LME nickel trading unlikely to resume before 11 March

Market: Metals
08/03/22

The London Metal Exchange (LME) does not expect to resume nickel trading before 11 March after taking the extraordinary decision to suspend trading early this morning.

The LME said in its latest notice that it needs to establish "operational procedures to effect a safe re-opening" and explore the possibility of "netting-off" long and short positions before reopening nickel trading, tasks it does not expect to be completed before 11 March.

The LME suspended nickel trading after "unprecedented" increases in the benchmark price, which surged above $100,000/t overnight. Trading was suspended as of 08:15 GMT today, and the exchange cancelled all nickel transactions that took place after 00:00 GMT.

To reopen, the LME expects to set limit-up and limit-down maximums for all nickel contracts at 10pc on either side of the closing prices on 7 March. Given these limits, the LME said it is "possible that the market may take more than one day to reach a stable" price.

More strikingly, the LME is exploring mechanisms to reduce the volume of short positions, as well as positions participants "wish to exit as soon as possible on the resumption date." The LME provisionally proposed allowing long and short position holders to net-off their positions at an indicative price of the 7 March closing price plus 10pc.

Alongside the Russia-Ukraine conflict, the main driver of the extraordinary surge in the nickel price and the subsequent suspension of trading was the inability of brokers to pay margin calls against unprofitable short positions on the exchange, creating a huge short squeeze in the nickel market.

Central to this squeeze is the Chinese group Tsingshan, the world's largest nickel and stainless steel producer, which has held a large short position in nickel on the LME dating back several months.

"Tsingshan has been under pressure to meet margin calls, and we first heard of it a few weeks ago," a trader at a large European metals group said today.

The pressure from brokers to meet those calls caused the dramatic spike in the LME nickel price throughout yesterday and the early hours of today. Three-month nickel prices on the LME more than doubled in Asian trading today to a record high above $100,000/t after increasing by over 60pc yesterday to a high of $46,850/t, the highest since 5 June 2007.

LME pause throws markets into disarray

The halt in LME nickel trading created widespread uncertainty in markets that use the benchmark price as a basis for determining daily values such as for stainless steel scrap.

US market participants proceeded by quoting stainless steel scrap prices based on the prior day's closing price. While some considered suspending all buying activities after the sharp rise in prices yesterday, other large processors were able to buy more material than anticipated today.

In the nickel cathode market, traders either stayed on the sidelines or sold against premiums while agreeing to negotiate final prices at a later date.

Most expect the LME nickel prices to decrease, potentially significantly, once trading resumes and the short squeeze is resolved.

By Blake Hurtik

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