Traders work on the floor of the London Metal Exchange in London, UK, September 27, 2018. REUTERS/Simon Dawson
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LONDON, March 8 – The London Metal Exchange (LME) has taken the unprecedented step of suspending nickel trading and canceling all trades on Tuesday as a short run saw prices double in just hours to a record high above 100 000 dollars per ton.
The closure of trading after Western sanctions jeopardized supplies from Russia, the biggest producer, is the biggest crisis to hit the 145-year-old exchange in decades.
In the 1990s, the fraudulent trader Sumitomo attempted to take over the copper market, and in the 1980s, the tin trade was shut down for five years.
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The move highlights the market panic caused by Russia’s invasion of Ukraine, with buyers scrambling for the metal needed to make stainless steel and electric vehicle batteries.
“Current events are unprecedented,” the LME notice to members reads. “The suspension of the nickel market has created a number of issues for market participants that need to be addressed.”
One of the reasons the LME took action is because some position holders struggled to pay margin requirements, traders said.
The LME has raised margin requirements on nickel contracts by 12.5% to $2,250 a ton since the close of trading on Tuesday and suspended nickel trading on all markets until at least the end of the day. More
“If the LME suspends trading for the day, it won’t help its long-term value,” said Colin Hamilton, managing director of commodity research at BMO Capital Markets. “This market is meant to be used as a last resort and people can’t get stock to cover positions.”
The LME announced that all trades would be canceled from midnight until 8:15 am on Tuesday, when trading halted, and added that it was considering closing for several days.
Another rare move was the delay in the physical delivery of maturing contracts.
“The LME will actively plan for the opening of the nickel market and will announce the mechanism for this in the market as soon as possible.”
Three-month nickel on the LME more than doubled to $101,365 a tonne before the LME stopped trading its electronics and in an open ring of protest.
Nickel cut profits to $80,000 a tonne when trading was halted, up 66% on the day and a staggering 177% since Monday.
MARKET BATTLE
According to Malcolm Freeman of Kingdom Futures, the explosive rally that saw prices quadruple in the last week was the result of a confrontation between two big players.
According to the LME, one company controls between 50% and 80% of the LME’s reserves.
“There is a very big short and a very big long who sparred. And because of their sparring, he abused a lot of other shorts,” Freeman said.
He added that some small industrial users were caught in the crossfire by taking positions to receive physical delivery but then faced millions of dollars worth of margin calls. More
On Monday, the exchange said short participants unable to deliver or borrow metal with a backwardness of no more than 1% of the previous day’s cash price could receive a delivery delay.
Uncertainty caused by the Russian invasion and subsequent sanctions exacerbated an already bull market in nickel due to low inventories, which have halved since October on the LME.
According to JPMorgan analyst Dominic O’Kane, Russia not only supplies about 10% of the world’s nickel, but Russia’s Norilsk Nickel is the world’s largest supplier of battery nickel, accounting for 15-20% of global supplies.
LME is owned by Hong Kong Exchanges and Clearing Ltd.
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Additional report by Eileen Soreng from Bangalore; Editing by Louise Havens and Jason Neely
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