Stock - Nickel
Image Credit: Bloomberg

London: Nickel spiked briefly above $100,000 a ton on the London Metal Exchange amid a short squeeze that’s embroiled a major Chinese bank and encouraged rule changes from one of the world’s top commodity exchanges.

The material used in stainless steel and electric-vehicle batteries surged as much as 111 per cent to $101,365 a ton after closing up 66 per cent the day before. It pared gains to be up 74 per cent at $83,500 a ton as of 3:10 p.m. in Shanghai.

The market on the LME is in the grip of a massive squeeze in which holders of substantial short positions are being forced to cover at a time of low liquidity. To give a sense of nickel’s dizzying surge, it has risen around $11,000 a ton over the last five years. This week alone, it’s jumped by as much as $72,000.

“It’s going crazy - it’s not reflecting any industry fundamentals,” said Jiang Hang, head of trading at Yonggang Resources Co. The “LME trading system is out of control and requires intervention,” or the contagion may spill over to other metals, he said.

LME suspends nickel trading

The London Metal Exchange halted trading in its nickel market after an unprecedented price spike left brokers struggling to pay margin calls against deeply unprofitable short positions.

Nickel prices surged by as much as 250 per cent over the past two days to hit record highs above $100,000 a ton, in the largest price move ever seen on the LME. The frenzied move came as investors and industrial users who had sold the metal scrambled to buy the contracts back, while brokers rushed to collect margin payments to cover their deeply unprofitable positions.

A unit of China Construction Bank Corp. was given additional time by the LME to pay hundreds of millions of dollars of margin calls it missed Monday, Bloomberg reported.

The suspension is for at least the remainder of Tuesday.

Unusual shift

Late Monday, the LME decided to allow traders to defer delivery obligations on all its main contracts - including nickel - in an unusual shift for a 145-year-old institution that touts itself as the “market of last resort” for metals. The LME also gave a unit of China Construction Bank Corp. extra time to pay hundreds of millions of dollars in margin calls that were due Monday, according to people familiar with the matter.

Nickel was already rallying on tight supplies even before Russia’s invasion of Ukraine, which has sharpened fears of sweeping commodity shortages. Higher nickel prices, if sustained, threaten to ratchet up costs for electric-vehicle batteries and complicate the energy transition. Russia produces 17 per cent of the world’s top-grade nickel.

“What we do know is that markets tend to over-react a little bit, they sometimes over-shoot,” Gavin Wendt, analyst at consultancy Mine Life Pty in Sydney said. “But in this instance, with the uncertainty of war, it’s hard to talk about a commodity being over-valued.”

The missed payments from CCBI Global Markets - the unit of China Construction Bank - are not necessarily an indicator of any problems at the parent company, which is one of China’s largest banks. It’s more likely due to a failure by one of the subsidiary’s metals-industry clients failing to make margin payments, according to one of the people familiar with the matter.

CCBI Global is a broker on the LME’s open-outcry trading floor.