European nickel trade disrupted by LME suspension

Buyers and sellers of nickel in Europe reacted to the suspension of London Metal Exchange nickel trading yesterday by mostly halting trading activity, with some seeking to sell against premiums alone as they waited for markets to reopen.

No physical trade was reported to have taken place at levels approaching the $100,000/t that the LME three-month nickel surged to in the early hours of yesterday before suspension of trading. The majority sentiment among European market participants was that prices will fall back after the settlement of the margin calls.

"We expect trading to calm down once the short squeeze has run its course," a trading group told Argus. "Prices should fall when the market re-opens," another trader said.

The increased volatility in the markets — with Tsingshan, the world's largest nickel producer, being caught in a short squeeze, together with the threat of no supply from Russia's Norilsk Nickel (Nornickel), the world's largest exporter of Class 1 nickel — is likely to keep prices at levels significantly higher than immediately before the start of the Russia-Ukraine conflict.

"Even before recent events [the LME surge], we had priced nickel in at $70,000/t based on our internal assessment of the market," a trader at a large European metals group said yesterday.

The nickel market has been defined by low stocks and tight availability since last year. This tightness was expected to be relieved by the introduction of large volumes of high-grade nickel from the Tsingshan-led nickel matte process set to come on line later this year. Based on the fragility of Tsingshan's current trading position, markets are likely to weigh the possibility of a delay to this nickel becoming available, adding to the existing supply stress.

And while Russian nickel is not yet specifically sanctioned, limits on doing business with Russian entities are already disrupting Nornickel's ability to deliver metal. European end users purchase up to 70-80pc of their refined nickel from Nornickel through long-term contracts.

The potential that metal scheduled for delivery under these agreements may not be available triggered panic buying in the spot market that caused Argus assessments for nickel premiums to spike at an unprecedented rate a week ago, which was a prelude to the massive rise in the underlying LME price across 7-8 March.

By Raghav Jain