London Metal Exchange rushes to contain fallout of nickel trading crisis
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Things are getting crazy in commodity markets as prices go into a frenzied overdrive. The London Metal Exchange (LME) was forced to suspend all trading in its nickel contracts (LN1:COM) on Tuesday, saying it wouldn't reopen things until March 11 at the earliest as it balances its books and returns stability to the market. The cost of LME three-month nickel, the key pricing benchmark for the global physical supply chain, shot up to $101,365 a ton on Tuesday, up from $30,000 just sessions earlier.
The big short: It's an unfolding story that reportedly involves China's Tsingshan Holding Group, the world's biggest producer of nickel used in stainless steel and EV batteries. The firm apparently made a sour nickel bet by building up a massive short position, but now faces $8B in paper losses due to an influx of margin calls (it has since secured loans from JPMorgan and China Construction Bank). Nickel was already on a rip due to the commodity rally turbocharged by the conflict in Ukraine when the historic short squeeze pushed things over the edge.
"This has never happened before in the history of the nickel market," Guy Wolf, the global head of market analytics at Marex. "'Unprecedented' is an overused word, but this actually is." The closest thing that may come to it is the "Tin Crisis" of 1985, which pushed many brokers out of the industry and saw the LME suspend trading in the metal for four years. Morgan Stanley is even saying the effects of nickel's jump on EV prices and sales could be significant over the next couple of years.
Fun fact: The remarkable rally in nickel prices has pushed the price of an actual nickel, a $0.05 piece, way above its worth. While only 25% of a nickel is made from the actual metal, at Tuesday's prices, it would be worth $0.125 (that's without the rest of the valuable copper that makes up the coin). While the strange price point has occurred many times throughout history, don't get too exciting about starting a melting operation. It's illegal to extract the raw materials in pennies and nickels with the intent of selling them for profit.