The London Metal Exchange (LME) halted nickel trading effective 8:15 a.m. London time today.
The contract will remain suspended for the remainder of today. According to the LME, the price movement in Asia overnight combined with the situation between Russia and Ukraine led to the decision to halt trading.
Furthermore, the LME said it would examine trades made prior to the close, which could result in a “reversal or adjustment.”
The exchange said the suspension could last for multiple days. The LME will work with relevant parties to manage upcoming deliveries.
Keep up to date on nickel price movements in upcoming installments of the MetalMiner weekly newsletter.
A nickel short squeeze
The nickel market saw a short squeeze, not driven by market fundamentals.
A short squeeze refers to when bears/short sellers begin to cover their positions as they lose more money than they can afford. They “buy to close” their positions. That triggers a chain reaction of buy orders, causing prices to skyrocket.
Nickel prices have spiked parabolically — defined as tremendous strength in a few seconds or minutes — due to the recent short squeeze caused by the Russian invasion of Ukraine.
As prices climbed, the exchange began margin calling the short sellers. Prices began to rise as part of a chain reaction of sell orders being closed.
Nickel prices quickly touched over $100,000/mt as nickel broke out of its technical structure. New buyers and short sellers engaged in panic selling, creating a stunning move.
This month’s Stainless MMI report will include additional analysis of nickel and stainless markets.
Short and long
What we are seeing is interplay between two large position holders.
The first holds a long position, accounting for 50-70% of the market. The other is short and has been trying to close positions as the market rose due to rising concerns over Russian supplies yesterday.
As noted, all the short sellers got caught. Their margin calls will run into thousands of pounds per ton. Hence, the LME closed the market to allow a cooling-off period.
We could see sell-offs in other metals and/or markets as short sellers raise capital to meet the margin calls. The nickel price rise will probably prove short-lived and will fall back when trading resumes. However, it might not fall back to the prior closing price.
Stainless surcharges will increase to the extent the March average is raised by the current elevated nickel price.
If nickel consumers needed any encouragement to diversify to alternative alloying elements, they have it (stainless, batteries, plating, alloying).
Nickel prices may come down from the over $100,000/mt peak. However, consumers will be seriously rattled by what’s happened over the threat to Russian supplies.