How the London Metals Exchange saved the nickel short-sellers’ bacon

Short sellers were caught out as the price of nickel briefly soared to $100,000 a tonne. But the London Metals Exchange saved their skins by halting trading for more than a week.

Nickel trading on the London Metal Exchange (LME) was suspended for more than a week after the metal briefly soared to $100,000 a tonne. Nickel, which is used to make stainless steel and electric-vehicle batteries, has recently traded for between $10,000 and $20,000 a tonne, but on 7-8 March, the price rose by 250%, prompting the LME to halt trading until 16 March. 

Miners and manufacturers use the LME market to hedge their exposure to price volatility, says Bloomberg. Some – notably Chinese tycoon Xiang Guangda  – had made big bets that nickel would fall because of rising production in Indonesia. Yet sanctions on Russia, the world’s third-largest producer, instead gave the price a boost. That forced bears to buy back futures to cover their positions, driving the price even higher.

When prices leapt by $30,000 in a matter of minutes early on 8 March, the LME halted trading. Controversially, it also cancelled the near-$4bn of nickel trades that were made in the hours preceding the surge, effectively resetting the market to the previous day’s $48,078 closing level. That drew fury from some traders, says the Financial Times. By “scrubbing the day from the record books”, they say the exchange has taken the side of squeezed short-sellers and brokers over those who bet the right way.

Yet for all the drama, nickel looks likely to come back down to earth soon, says David Fickling on Bloomberg. High prices will give smelters in China an incentive to convert lower-quality nickel into the more premium variety traded on the LME. And new plants in Indonesia that tap abundant, but low-grade, laterite ores suggest that we may be on the verge of unlocking “a significant new source” of global supply. “Prices driven by a short squeeze of this sort tend to calm down rapidly.”

Recommended

Is it time to pick up growth stock bargains yet?
Investment strategy

Is it time to pick up growth stock bargains yet?

If you’re thinking of picking up some bargains from the tech stock crash, beware – there are still plenty of “growth traps” out there. John Stepek exp…
26 May 2022
A fund that should give good returns from investing in good deeds
Share tips

A fund that should give good returns from investing in good deeds

Schroders BSC Social Impact Trust has made a solid start and looks more attractive than it did at launch, says Max King.
26 May 2022
Wall Street’s sell-off has further to go
US stockmarkets

Wall Street’s sell-off has further to go

The current stockmarket sell-off has been led by tech stocks, but the pain is spreading. The bear market has further to go – US stocks are still expen…
25 May 2022
Law Debenture investment trust update: premium over net assets slips
Investment trusts

Law Debenture investment trust update: premium over net assets slips

Saloni Sardana looks at the latest update from the Law Debenture investment trust, one of the six funds in MoneyWeek’s model investment trust portfoli…
25 May 2022

Most Popular

The world’s hottest housing markets are faltering – is the UK next?
House prices

The world’s hottest housing markets are faltering – is the UK next?

As interest rates rise, house prices in the world’s most overpriced markets are starting to fall. The UK’s turn will come, says John Stepek. But will …
23 May 2022
Everything is collapsing at once – here’s what to do about it
Investment strategy

Everything is collapsing at once – here’s what to do about it

Equity and bond markets are crashing, while inflation destroys the value of cash. Merryn Somerset Webb looks at where investors can turn to protect th…
23 May 2022
Three high-yielding FTSE 250 dividend stocks I’d invest in right now
Share tips

Three high-yielding FTSE 250 dividend stocks I’d invest in right now

The average FTSE 250 dividend yield is around 2.4%, but many stocks yield much more. Rupert Hargreaves picks the best FTSE 250 stocks for income inves…
23 May 2022