LONDON – The London Metal Exchange said on Wednesday that it was forced to halt the nickel market again after a “system error” allowed a small number of trades to take place below a recently set daily price cap.
The LME said it is investigating the technical glitch and will try to reopen the nickel market as soon as possible. It states that trades made below the lower daily price limit will be cancelled.
The new suspension of trading in nickel represents another unfortunate setback for the LME. With a 145-year history, the exchange is the world’s center for trading industrial metals and the main place for pricing.
The LME resumed trading in nickel at 8:00 am London time after extreme price volatility caused a rare market close last week.
Nickel prices more than doubled in a matter of hours on March 8, topping $100,000 a metric ton, as one of the world’s top producers, China’s Tsingshan Holding Group, bought large volumes to cut its short bets on the metal.
This stance exacerbated the rise in prices at a time when metals were already rallying higher due to Russia’s escalating conflict in Ukraine.
The LME on Wednesday set trading limits at 5% above or below the last closing price prior to last week’s suspension. Previously, it was said that any offers that exceed the upper or lower limit will be rejected.
“We are fully aware of the impact this has had on so many people and we need to make sure it doesn’t happen again,” Matthew Chamberlain, LME CEO, told CNBC’s Squawk Box Europe on Wednesday. His comments came shortly before the opening of the nickel market.
Chamberlain said the LME has “deliberately prioritized stability” by setting a relatively narrow range of daily trading limits, but those may soon be expanded if the exchange sees a “more orderly market”.
Looking ahead, the LME CEO said that “greater visibility” in the OTC market would be required. Chamberlain said this was in addition to other reforms such as price bands. “We cannot be in a position where this will happen again.”
“Stomach ache”
Commodity prices jumped on supply worries linked to Russia’s push into Ukraine, with the ongoing war and a string of Western sanctions raising fears of disruption.
Along with energy resources, Russia is a key producer and exporter of metals and grains. Indeed, Russia is the world’s third largest producer of nickel, a key component of stainless steel and the main component of lithium-ion batteries.
“Undoubtedly it is a busy time with prices where they are, but I think we are starting to see some stability and if we all act responsibly, as I believe our market is doing now as we reopen nickel in an orderly fashion. , then I think that the stability of the system should not be affected,” Chamberlain said.
Traders, brokers and clerks on the London Metal Exchange’s open floor trading floor in London, UK on Monday 28 February 2022
Chris J. Ratcliffe | Bloomberg | Getty Images
Chinese steel group Tsingshan said on Monday it had reached a so-called suspension agreement with banks to settle the nickel bet that sent markets into turmoil last week. The nickel giant could lose billions of dollars due to its short position.
Short selling is a bearish investment practice in which an investor bets that the price of an asset will fall. A short squeeze occurs when a large number of investors sell an asset, the price rises sharply, and investors simultaneously close their positions, losing money. Because short exits include buy orders, a short squeeze pushes prices even higher.
When asked on Tuesday what he expects to see when the LME reopens the nickel market, Saxo Bank’s Ole Hansen told CNBC: “It’s going to be terrible.”
“A lot of people are just sick of how the market behaved last week, but hopefully this will be a wake-up call for the LME because they are living in the past,” Hansen said.
“Hopefully it will bring some long overdue reforms. You shouldn’t have a hole where 20 people are screaming and screaming – that’s just a relic from the past. Forget about it,” he continued.
“We need stabilizing contracts where liquidity can be concentrated, and by doing so you also reduce the risks of such spikes, because you bring more players into the market, thereby eliminating the risk of these very, very sharp cuts.”