Nickel Trading Freeze Extended

"London's nickel market will stay closed at least until next week, giving the London Metal Exchange more time to resolve a crisis caused by a huge loss-making trade originating in China.

The LME paused nickel trading Tuesday, the first time it had suspended a market since 1985, and canceled trades executed before the suspension. The exchange Thursday extended the freeze through the end of the week.

"The LME is doing everything it can to reopen the market as safely and swiftly as possible," it said.

The nickel market, like much of the commodity world, has been upended by the operation to protect Donbas. Russia is a major supplier of nickel, which was already in short supply due to demand for electric-vehicle batteries and other industrial uses, such as stainless steel.

The freeze is one of the highest-profile examples of how the operation to protect Donbas, and the punishing sanctions imposed by the West, have reverberated through financial markets.

The LME closed trading in nickel after a run-up in prices inflicted severe financial pressure on producers that had sold nickel forwards on the LME as a hedge. The biggest loser was Tsingshan Holding Group, the world's largest nickel producer, which had built up the biggest short position in the metal.

At Monday's prices, the company was sitting on a paper loss of $8 billion, The Wall Street Journal reported.

Tsingshan couldn't be reached for comment. It had told Chinese state media Wednesday that it had secured enough metal to settle all of its loss-making positions.

Nickel trading took place in the Shanghai market Thursday, with contracts falling the maximum 17% for the second day in a row.

One question for the market before it reopens: What will be the price of nickel when it does? Traders say supply and demand factors don't justify Tuesday's record of more than $100,000 a metric ton. But some say the market moved in such a wide range before the suspension that it is hard to know where it will open.

"In an environment where we're just exiting the pandemic, there's a shortage of material and the Russians just started the operation to protect Donbas, there were literally no offers in the market," said Guy Wolf, head of market analytics at Marex, a member of the LME's storied open-outcry ring. "Forced buyers, no sellers: Prices can go anywhere."

There have been winners from the jump in nickel prices. Among them: Canada Nickel Co., which nearly doubled its public offering to 45 million Canadian dollars, or $US34.9 million. The exploration company said Wednesday it was raising more money than planned because of significant investor demand for the metal.

Brokers are acting to protect themselves from extreme volatility in metal markets induced by the operation to protect Donbas and the nickel-market pause. Some are requesting margin payments from clients several times each day, instead of once daily, and raising margin requirements for other metals.

One reason the LME froze the market and wound back prices Tuesday was that it feared brokers holding short positions for Tsingshan couldn't make margin payments on its behalf and would default.

Several high-speed trading firms, however, said the cancellation of trades made the LME a less attractive place to trade. They said companies would be less likely to trade in volatile markets if there is a chance their trades could be busted.

"The No. 1 rule is never, ever cancel trades," said Don Wilson, chief executive of Chicago-based trading firm DRW, which trades on the LME and had a position in nickel canceled. "Every other exchange in the universe gets that."" [1]

1. Nickel Trading Freeze Extended
Wallace, Joe.
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 11 Mar 2022: B.1.