By Geoffrey Smith
Investing.com -- The world's benchmark market for Nickel suspended trading Tuesday after a wild few hours in which prices more than tripled to over $100,000 a ton.
The London Metal Exchange took the rare step of saying it would consider whether to cancel or adjust trades that were made in a manic period after Monday's official close, when a violent short squeeze drove prices to a level more than twice their previous record high 15 years ago. Having peaked at $101,365 a ton, the benchmark contract was trading at $81,051 when it was suspended.
The incident is the latest indication of stress rising in financial markets across the world in the wake of the U.S. and European sanctions on Russia, which were imposed after Russia's invasion of Ukraine at the end of February. As with oil, natural gas and wheat, Russia is one of the world's biggest sources of nickel, accounting for some 17% of global supply, and any attempt to restrict its exports must have far-reaching consequences for the world market.
Nickel is most commonly used in stainless steel made for the automotive, appliance, and construction sectors. However, incremental demand is coming overwhelmingly from the electric vehicle sector, for whom it is an important battery material. Analysts at Rystad Energy expect the spread of electric mobility to raise the global demand for nickel by over 35% to 3.4 million tons by 2025, from around 2.5 million tons last year. The average Tesla (NASDAQ:TSLA) car contains around 45 kilograms (99 pounds) of the metal.
Growing demand from EV makers had already drained LME inventories last year, and they now stand at their lowest level since 2019.
Various reports attributed the surge in prices to the increasing desperation of Chinese participants to cover short positions. China Construction Bank (OTC:CICHF), one of the country's largest state-owned banks, was granted extra time on Monday to meet a margin call that it had missed earlier. The reports suggested that the position was ultimately held by Tsingshan Holding Group Co., China's largest nickel producer.
The Financial Times quoted the company as telling a local Chinese news agency that it had "already held a meeting this morning, is sorting out the relevant materials and content and will make a public response in due course.”
Tsingshan's website wasn't working as of the time of publication.
The surge also badly hurt all other brokers holding short positions as hedges for their daily business. The LME said it would calculate margin calls on the basis of Monday's closing price of around $48,000 a ton.