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.”

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