Instant view: LME suspends nickel trading after price surge

© Reuters. FILE PHOTO: The offices where the London Metal Exchange is headquartered are seen in the City of London, Britain, January 18, 2018 REUTERS/Peter Nicholls

LONDON (Reuters) – The London Metal Exchange (LME) said on Tuesday it has suspended the trading of nickel on all venues for at least the rest of the day after prices more than doubled to cross a record $100,000 per tonne level.

Following are reactions to the decision:

AL MUNRO, LME DESK, MAREX

“Unprecedented price moves the results of margin calls with zinc and iron ore trading in tandem with nickel. Risk reduction ensues from funds. We note spreads well offered across majority in signs that stock is coming…”

“… we note evidence of demand destruction already hitting our space => VW having closed a number of European factories albeit primarily by parts shortages but also driven by higher raw material costs. Moreover, onshore and Fushun Special Steel Co has halted taking new sales orders following the recent price surge in raw material prices and particularly nickel and cobalt.”

MALCOLM FREEMAN, CHIEF EXECUTIVE, KINGDOM FUTURES

“I haven’t got much sleep since 1 a.m. this morning. There’s a very big short and a very big long who’ve been sparring. And because of their sparring, it’s brutalised so many other shorts.

“Speaking to a few people, most think they should shut the market for 48 hours at a minimum and that’s Thursday, so why not go until Monday. Then you can get all your margin calls, sort things out.

“The other problem we have in the market is hundreds of hundreds of millions of idiot money in the market. Algos, funds, people who wouldn’t know a copper cathode if you slapped them across the head with it. That’s petrol being thrown on a very well-established fire.”

COLIN HAMILTON, MANAGING DIRECTOR OF COMMODITIES RESEARCH AT BMO CAPITAL MARKETS

“For the LME to stop trading for an entire day, that doesn’t help its long-term relevance. It doesn’t set a great precedent.

There will be lots of scrutiny of the LME rules again for this to happen.

“People will be asking if this really a functioning market. By that I mean, we are very low on inventories across the board but this is meant to be a market of last resort and people cant get inventories to deliver against positions.”

COMMERZBANK COMMODITY RESEARCH

” … we suspect that a so-called short squeeze is partly responsible for the extraordinary price surge, in addition to the concerns about supply. Some market participants who had been betting on falling prices were clearly surprised and wrong-footed by the price upswing and momentum since Russia’s invasion of Ukraine. Market observers are also talking of very low liquidity levels on the nickel market at present. We regard the price surge as exaggerated and expect trading to calm down again once the short squeeze has run its course. The nickel price should then fall significantly again.”

MARINA BOZKURT AND SUSAN ZOU, ANALYSTS AT RYSTAD ENERGY

“Tracking the LME strength since last night, the most-traded April nickel contract price on the SHFE opened the day trading with at 228,810 yuan ($36,266) per tonne on March 8, hitting a record high.

“Fears over nickel supply disruptions following Russia-Ukraine conflict continued to be aggravated, inciting extensive buying on both platforms,” the analysts said in a note.

SUSANNAH STREETER, SENIOR INVESTMENT AND MARKETS ANALYST, HARGREAVES LANSDOWN

“The huge volatility and rapid moves in price during trading in Asia prompted the drastic decision. It seems the meme stock frenzy has now metamorphosed into commodity chaos, as traders have scrambled to try and cover short positions. Those that had bet against the metal’s rise in value, have now been forced to buy at a much higher price, creating a short squeeze. It’s likely a big margin call prompted the suspension of trading, with sharp gains forcing speculators to scramble for additional capital to put into accounts to cover the shortfall.”

WENYU YAO, ANALYST AT ING

“The exchange tradeable underlying nickel is only perhaps a quarter of global saleable nickel, that makes the nickel exchange trading a tough and risky business. However, the industry is shifting towards producing more non-deliverable nickel such as NPI or matte. The would make exchange nickel look increasingly decoupled with the real market.”

JOHN MEYER, ANALYST AT SP ANGEL

“The LME are suspending the market to help restore order and enable settlement due on transactions, e.g. margin calls.”