Nickel market in turmoil after chaotic return to London

London — The London Metal Exchange wanted to regain the global market for nickel cars on Wednesday after a week of stagnation. It didn’t work as expected.

The world’s oldest metal exchange was forced to stop trading electronic systems within a minute of opening due to technical glitches, and when it resumed in the afternoon, there were few trades.

The chambolic reopening put further pressure on the LME, which has already faced criticism for shutting down the market after some traders faced billions of dollars in losses due to price spikes last week. increase.

LME nickel prices are used as a basis for trading between metal end users and producers, and with the resumption of chaotic markets, some traders wonder if participants may look for alternative locations. thought.

“This is difficult for the market and all its participants,” said Michael Widmer, Head of Merchandise Research at Bank of America.

“If you’re pricing from an LME contract, but you don’t have a reference price, you’re buying raw materials at the LME price, and you need to manage your cash flow, that’s difficult,” he said.

By 4:25 pm Greenwich Mean Time, the LME’s three-month nickel contract was expected to be the latest day since November 2006, trading only 249 lots, or 1,494 tonnes.

On March 7, 26,150 lots, or 156,900 tons, were replaced.

The day after China’s Aoyama Holding Group bought a large amount of nickel, the LME nickel market was shut down, rising more than 50% within hours, setting a record of over $ 100,000 per ton, according to sources.

To prevent severe price volatility when trading resumes on Wednesday, the LME introduced a limit 5% higher or lower than the adjusted closing price of $ 47,986, but due to technical issues, some trading was $ 45,590. I was able to fall below the lower limit of.

The exchange said that the lower limit of transactions executed by the LMEselect system remains, but transactions below it will be cancelled.

“What a mess. It’s embarrassing. I don’t even start to explain it chaotically,” said one metal trader. “People will start thinking about leaving the LME.”

Due to the turmoil, the LME has increased the nickel trading limit to 8% and added that it may further adjust the nickel and other metal limits depending on market conditions.

“Complete dislocation”

The price of nickel, which is used in the manufacture of stainless steel and is the main material for electric vehicle batteries, has risen steadily even before the Ukrainian conflict further raised prices and caused the turmoil last week.

Russia accounts for about 10% of the world’s nickel production, and traders were concerned that western sanctions on Moscow could limit supply.

At the official LME protest session on Wednesday at the London Trading Ring, prices also reached the lower limit, but e-commerce resumed at 1400 GMT.

“People are waiting to be satisfied with the price of the LME,” said Robert Montefusco of broker Sakuden Financial. “Until that happens, it’s hard to see a lot of liquidity coming back to the market.”

Nickel trading on the Shanghai Futures Exchange was suspended for a day last week, but continues as long as the LME contract is not working. Nickel traded in Shanghai on Wednesday for 235,200 yuan per ton, or about $ 37,000.

LME’s system was provided with a lot of nickel, as traders expected prices to fall towards Shanghai prices, especially in light of recent developments in Aoyama, sources said.

Kiyoyama said this week he had reached a ceasefire agreement with a banking group. This has raised expectations that it will not be necessary to buy metal immediately to cover bets on low prices.

The bearish sentiment was reinforced by Wednesday’s report from state-owned Shanghai Securities News that Tsingshan had agreed with the two companies to replace nickel with a purer form of metal and close a large LME position.

“LME Nickel is, by itself, a complete departure from the rest of the world,” said Saxo Bank analyst Ole Hansen. “For now, let’s say Shanghai Nickel is a global market, at least because it is traded.”

Why 5 percent?

This week, the LME has set a 15% trading limit on all other major metals, including copper and aluminum. This is the first time in 145 years of history that limits full contracts.

“The big question is why the LME set a 5% limit on nickel when it set a 15% limit on other metals. If they leave this alone, they probably don’t know where Shanghai is. It would have been gone, “said Malcolm Freeman of Kingdom Futures.

When Shanghai resumed nickel trading last week, the exchange introduced a 17 percent trading limit.

In addition to the second suspension of nickel transactions in history, the LME canceled all transactions on March 8 and extended the deadline for those obliged to deliver physical metal in contravention of the contract.

Hong Kong Exchanges and Clearing Ltd owns LME, the oldest and largest industrial metal market in the world.

Pratima Desai, Zandi Shabalala, Eric Onstad