LME cancels nickel trading after price soars past US$100,000 a tonne

The London Metal Exchange (LME) cancelled nickel trading on Tuesday after a first-time 250% price spike triggered by Western sanctions against major producer Russia, which left brokers struggling to pay margin calls against unprofitable short positions.

Prices for the metal, key ingredient in batteries that power electric cars and high-tech devices, soared to a record above US$100,000 a tonne amid a vicious short squeeze — the largest-ever on the LME.

The 145-year-old exchange responded by halting trade and in a later update announced the cancellation of all trades executed on or after midnight (U.K. time) on Mar. 8 and deferring delivery of all physically settled contracts. 

The LME said the move followed a close monitoring of the ongoing impacts of Russia’s invasion of Ukraine, as well as the recent “low-stock environment and high pricing volatility environment observed in various LME base metals, and in particular nickel.”

The move, BMO analyst Colin Hamilton said, will see questions resurface as to the efficacy of the LME to act as the market of last resort after the short squeeze in copper seen late last year.

“It is unlikely this is the last of extreme volatility we see in commodity markets,” Hamilton wrote.

The debacle brings back memories of one of the bourses darkest periods, known as the “Tin Crisis” of 1985, which saw the LME stopping tin trading for four years and pushed many brokers out of business.

“Although no such suspension like this has happened since the tin crisis in 1985-86, the move in LME three-month prices to $100,000 per tonne, from Friday’s close at $29,130 per tonne, is likely to be a spike,” Will Adams, head of Battery and Base Metals research at FastMarkets said in an emailed statement.

The analyst believes that most of the buying pressure likely came from distressed shorts having to cover their positions on the exchanges, boosted by fears about supply from Russia and low levels of visible inventory on the LME. But Adams sees prices falling back “before too long.”

Nickel prices have steadily climbed in the past year as battery makers try securing steady sources of the metal, which has quadrupled its value over the past week on fears of further curbs on supply.

“We can expect nickel users in the growing market for batteries will be watching this volatility uneasily, particularly while the market is closed,” Adams said.

[Click here for an interactive chart of nickel prices dating back to 1989]

Russia not only is responsible for about 10% of the world’s production, but Moscow-based Norilsk Nickel (MCX: GMKN) is the biggest provider of battery- grade nickel at 15% to 20% of global supply.

Demand for high-grade nickel was already set to outstrip supply this year because of the increasing popularity of electric vehicles.

Goldman Sachs has forecast the nickel market to be in a 30,000-tonne deficit in 2022, up from their August forecast of a 13,000-tonne deficit.

Tesla boss Elon Musk has identified the shortage of nickel as one of the biggest hurdles to ramping up production of EV batteries. He promised in 2020 giant contracts to miners able to provide the EV maker with sustainable nickel.