Nickel prices went nuclear on Tuesday, more than doubling to top $100,000 per tonne before the London Metal Exchange (LME) was forced to step in and halt trading for the next few days.
The run on nickel was instigated by Russia’s invasion of Ukraine, and made worse by its subsequent decision to ban commodity exports in response to sanctions from the U.S. and its allies.
Russia accounted for roughly 9.2% of the world’s total nickel mine production in 2021, and holds 7.5 million tonnes of the metal in reserves, according to the U.S. Geological Survey. If Russia moves forward with its decision to ban nickel commodity exports, it means supply constraints for the metal are inevitable.
“This has never happened before in the history of the nickel market,” Guy Wolf, the global head of market analytics at Marex, an energy and commodities broker, told The Times on Tuesday. “‘Unprecedented’ is an overused word, but this actually is.”
‘The mother of all short squeezes’
Nickel’s incredible price gains this week also caused “the mother of all short squeezes” for firms trading in the metal on Tuesday, which only pushed prices higher, Craig Erlam, a senior market analyst at OANDA, told Insider.
A short squeeze happens when an unusual number of traders short, or bet against, an asset. If that asset’s price then rises to an extent the traders did not previously anticipate, they are often forced to cover their positions by buying the asset owing to margin calls from brokers. This drives the price even higher.
The short squeeze seen in nickel on Tuesday is similar to what happened to highly shorted “meme stocks” like AMC and GameStop back in early 2021 when some brokerages were also forced to halt trading in the volatile equities.
Nickel trades at the London Metal Exchange will now be halted through the morning of March 11 at a minimum, as the 145-year-old global center of metals trading works to close the substantial short positions on its books and return stability to the market.
The biggest nickel loser
One firm, in particular, Chinese stainless steel producer Tsingshan Holding Group, is now facing an $8 billion paper loss on its nickel trades.
In a last-ditch effort to address the firm’s liquidity squeeze, Tsingshan’s executives were able to secure financing from banks including JPMorgan Chase and China Construction Bank in meetings that ran into the early hours of Wednesday morning, Bloomberg reported.
Chinese authorities also directed domestic banks to offer credit lines to the company, which will be used for margin calls on its existing positions on the London Metal Exchange, reports say.
Tsingshan assured creditors that its financial position was secure, despite “extreme losses,” the Wall Street Journal reported.
The EV fallout
News of the sudden supply drop in nickel led manufacturers of electric vehicle batteries to race to seek reserves, as the metal is a critical commodity in the production of lithium-ion battery cells.
In a note to clients, Morgan Stanley auto analyst Adam Jonas said that the effects of nickel’s price jump on EV prices could be substantial, automakers’ earnings will take a hit as a result of nickel’s rapid rise, and EV sales over the next few years will be hampered.
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