The London Metals Exchange on Tuesday took what it called an “unprecedented” step of cancelling all the trades in nickel futures, responding to market conditions that sent the price of the industrial metal doubling.
“The LME has been monitoring the impact on the LME market of the situation in Russia and Ukraine, as well as the recent low-stock environment and high pricing volatility environment observed in various LME base metals and in particular nickel,” the exchange said in a statement as it cancelled all trades made after midnight U.K. time.
Russia produces 17% of top-grade nickel.
“The current events are unprecedented. The LME is committed to working with market participants to ensure the continued orderly functioning of the market. The suspension of the nickel market has created a number of issues for market participants which need to be addressed,” the exchange added.
Nickel had surged as much as 111%, moving past $100,000, before the LME suspended, and then cancelled, all the trades.
“Fundamentals, though supportive of stronger prices, do not justify this frenzy. Strong demand has continued this year with the battery sector remaining firm, while stainless steel was in a seasonal lull but expected to pick up in the coming months,” said Wenyu Yao, a senior commodities strategist at ING.
Analysts pointed to China as the source of short positions that were in need of closing after the metal surged as much as 70% on Monday.
Bloomberg reported that a unit of China Construction Bank
was given additional time by the London Metal Exchange to pay hundreds of millions of dollars of margin calls it missed Monday. That’s suggestive that one of the bank’s clients was short the metal.
ING’s Yao said the nickel market has long been faced with structural issues, as exchange tradeable nickel is only about a quarter of the market.
Nickel is mostly used for making stainless steel, but it’s also used in making products ranging from turbine blades to rechargeable batteries.
Metals markets can take some time to heal. LME-traded tin was suspended in 1985 and took four years to be reinstated.