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

The LME’s cancellation of trades has created anger

(Image credit: © Luke MacGregor/Bloomberg via Getty Images)

published 18 March 2022

Xiang Guangda: the “Big Shot” who broke the nickel market

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.

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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.”

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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.

Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.

He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.

Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.