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Nickel Prices Soar to US$100,000/t: What Happening?

Rene Anthony

Tuesday, March 8, 2022

Tuesday, March 8, 2022

Commodities have been at the centre of a huge rally as the war in Ukraine threatens disruptions to supply. Nickel is among the metals hitting new highs, but another factor is also at play.

Commodities have been at the centre of a huge rally as the war in Ukraine threatens disruptions to supply. Nickel is among the metals hitting new highs, but another factor is also at play.

Nickel prices are in the spotlight this week after the metal, a key input in stainless steel production, at one stage soared to more than US$100,000 per tonne in an unprecedented rise. 

Three-month contracts on the London Metal Exchange (LME) more than doubled in a single session, and quadrupled in the space of a week before the LME made the decision to intervene and halt all nickel trading on its systems until further notice. 

The LME has also made the decision to cancel trades and reset the price of the metal at the prior trading price of US$48,063, in a rare move intended to address the risk of a broader fallout for the metals market.

So what been behind this week wild price action? Let take a closer look.

Why have nickel prices skyrocketed?

Multiple factors have come together to spark the frenetic trading action seen earlier this week, including concerns relating to the fundamental supply of the metal, as well as the positions held by key traders in the market.

Sanctions against Russia, which supplies about 10% of nickel across the world, have prompted nickel buyers to scramble to secure supply. While nickel is used in stainless steel, it also has another prominent use - batteries for electric vehicles. And on that front, Russian miner Nornickel supplies upwards of 20% of battery-grade nickel. 

Nickel inventory has already halved on the LME since October, and the latest sanctions are viewed as another potential supply constraint.

Meanwhile, those familiar with the GameStop (NYSE: GME) saga will remember all too well the action that can unfold when certain players in the market are betting against (short) a position and a short squeeze takes hold. 

In this case, it is being widely reported that China's Tsingshan Holding Group, a leading nickel and stainless steel producer, has built a considerable short position over the last year, intending to buy back the inventory at a cheaper price. 

While LME data does not specifically name an entity, one firm is understood to have control of 50-80% of LME nickel inventories. Nonetheless, this week rise has forced Tsingshan to cover at least some of its short position by rebuying nickel to mitigate its exposure to margin calls.

Adding to the drama, another trader with a significant long' position has been battling' it out with the heavy-hitting short trader, and this is believed to have also hit a number of other traders shorting nickel.

Nickel prices soar

What is the impact on the nickel market?

On the back of its decision to suspend trading in the nickel market, the LME cited the current events are unprecedented, and also said the developments have prompted a number of issues for market participants which need to be addressed.

It has not only suspended trading for the time being, but it has also raised margin requirements on nickel contracts to US$2,250 per tonne, which comes after some traders were reportedly caught off-guard and in a difficult spot in terms of meeting margin calls. Meanwhile, all trades in the eight or so hours before the LME suspended nickel trading are being voided.

As it works through plans to reopen the market, the LME has also made the decision to temporarily halt the publishing of official nickel prices, as well as defer physical delivery of maturing contracts after numerous traders couldn't access inventories to deliver against their positions.

It is not the first time a metals market has been disrupted in such fashion, but you have to go back to the 1980s and 1990s, when copper, silver and tin trading were caught up in controversy - the latter didn't trade for five years.

The LME isn't the only market where nickel is traded, with the Shanghai Futures Exchange also having to raise its fees and issue warnings to traders after prices skyrocketed there as well. It is believed the exchange is mulling further action, including forced cuts to positions.

Where to next for nickel?

Moves by the LME are clearly intended to take the heat' out of the nickel market, and with that, there may be some scepticism about the prospect of prices remaining this high. 

This is likely due to the fact that the market operator is prepared to intervene and bring order into a market that has been heavily skewed by one large short position. The European Steel Association has also called on the LME to keep nickel trading suspended until price stability is assured.

Amid fears of supply issues, the nickel market may still be facing fundamental issues, giving rise to the prospect of above-average prices. However, there may be some relief on the way, with Indonesia, the world top nickel producer, set to boost production by up to 40% this year to offset lost supply.

If nickel prices remain elevated alongside other metals like cobalt - Russia is the second-largest cobalt producer in the world - there may be some potential headwinds for the EV sector, as electric vehicle batteries would undoubtedly become more expensive on the back of higher input costs.

ASX-listed stocks with nickel exposure:

  • Nickel Mines (ASX: NIC)

  • BHP (ASX: BHP)

  • Rio Tinto (ASX: RIO)

  • Independence Group (ASX: IGO)

  • Western Areas (ASX: WSA)

  • Mincor Resources (ASX: MCR)

  • Panoramic Resources (ASX: 

  • Ardea Resources (ASX: ARL)

  • Jervois Global (ASX: JRV)

International stocks with nickel exposure:

  • Tesla (NASDAQ: TSLA)

  • Vale (NYSE: VALE)

  • Jinchuan Group (HK: 2362)

  • Polymet Mining (NYSE: PLM)

  • Sibanye Stillwater (NYSE: SBSW)

  • Allegheny Technologies (NYSE: ATI)

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