LME nickel hits the buffers again
You must wonder what would have happened if the LME had left the nickel market alone — after nickel prices embarked on a meteoric rise March 7 — and allowed the short covering price spike to work out.
Yes, the shorts would have been badly burned. That would have included not just Tsingshan Holding Group tycoon “Big Shot” Xiang Guangda’s reckless bets against the market, but a host of other parties similarly ill-positioned.
But isn’t that what happens if you are the wrong side of a trade? That’s the risk you take.
Amid volatility in nickel prices (and other metals), keep track of metal prices in the MetalMiner Insights platform.
LME nickel vs. SHFE nickel
Anyway, for better or worse, the LME pulled the plug at 8:15 a.m. London time the following day, canceling some $3.9 billion of trades. Nickel trading — on the LME, at least — ceased for the next 11 days.
After a shaky start last week, LME nickel prices have gradually come into alignment with the SHFE price – which closed only for a day – as the arbitragers have sold LME and bought SHFE.
The market has remained volatile, though.
The LME suspended trading again Wednesday in the second ring because nickel prices exceeded limits. Currently, the price this morning is around $28,350 per metric ton, a far cry from the $50,000-$100,000 spike March 7-8 and arguably more representative of where it should be.
The MetalMiner Monthly Metal Outlook features additional analysis of stainless and nickel markets each month.
Exchange volumes
Volumes have been initially high on both exchanges. Investors have tried to balance their positions, with price movements driven as much by position trades as geopolitical events.
This week, trading volume has fallen sharply. Consumers, meanwhile, are trying to make sense of how they conduct price fixing following the suspension of a baseline price. Those working on monthly averages, such as the U.S. stainless surcharges, are simply ignoring the non-trading days (“disruption events” in LME parlance) and sensibly averaging only on traded days.
MetalMiner stainless analyst Katie Benchina Olsen says NAS, for example, is setting April’s surcharges on closing prices from Feb. 21 through March 18. With no closing prices published from March 8-18, however, that is essentially just 11 priced days resulting in an average price of $27,777.88 per metric ton.
Volatility ahead
Volatility is likely to continue.
With comparatively narrow 5% movement limits, further disruption events are possible, particularly as the lower volume means one significant trade can move the market.
For those working on monthly averages, that does not present an insurmountable problem.
However, those pricing or hedging trades on spot or three-month quotations face a major problem as the LME nullifies trades made that day in the event of a price movement triggering a close.
As volatility will continue to be a feature of metals markets, buyers should make sure to study the art of timing their metal buys.
Technical takeaways limited
Technical analysts trying to make sense of charts this month have all but pulled back from providing any guidance. The science is based on discernible patterns in price movements and a near vertical rise followed 11 days later by a precipitous fall is not a pattern that holds much predictive opportunity.
Likewise, fundamental analysis is trying to weigh many known unknowns. For example, will there be a cessation to hostilities in the Russia-Ukraine war anytime soon? Will Russian nickel manage to be delivered to European markets despite sanctions and logistics challenges? Will the LME actually implement its proposed ban on Russian brands of aluminum and nickel (probably not, but that remains to be seen).
Any one of these developments could drive prices robustly up or down. However, the LME limits will at least manage dramatic daily price movements in the short term, while markets sit tight and wonder what more is in store.
Leave a Reply