War in Ukraine drives nickel prices to unprecedented heights – and plunges the London Metal Exchange into a crisis

• Nickel price soaring
• LME reacts with trading stop
• The streak of bad luck doesn’t end

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Nickel price rises to more than 100,000 US dollars in London

Russia’s war of aggression against Ukraine not only caused global consternation, but also shook up the commodity market. It’s not just oil and gas prices that have been at high levels since the invasion due to fears of a supply freeze. The price of some metals has also risen since then – including the price of nickel. While at the beginning of the year 20,725.00 US dollars were due for a tonne of nickel and the price was quoted at 24,944.00 US dollars on February 23, i.e. one day before the start of the war, the price has risen significantly in the past few weeks. It climbed to more than $100,000 on the London Metal Exchange (LME) on March 8, prompting trading in the heavy metal to be suspended. But now it’s happening again. Most recently, a ton of nickel was trading at $32,724.00 (as of March 31, 2022).

Jump in price for nickel stocks too

But it wasn’t just the nickel price that went up recently, the shares of nickel manufacturers were also able to benefit. For example, the price of the Brazilian mining company Vale, which is listed on the NYSE, rose significantly, as did that of the commodities trader Glencore. Shares in the Indonesian nickel producer Aneka Tambang have also risen significantly on the home exchange in Jakarta since the beginning of the year.

Price increase surprises short sellers

According to the German Press Agency, the trigger for the jump in the price of nickel was several short sellers who had bet on falling prices for the silvery-white metal. According to the “Neue Zürcher Zeitung” (NZZ), the Chinese entrepreneur Xiang Guangda was also among the short sellers. According to information from the newspaper, the founder of the steel producer Tsingshan Group is said to have traded short bets against the price of nickel on a large scale even before Russia invaded Ukraine. Then, as the price of nickel rose, along with most of the commodities market, speculators had to buy more nickel to balance their positions, pushing the price of nickel further up and triggering a “short squeeze,” as seen in the meme-hype last year. Stocks like GameStop and AMC were the case. There was a veritable price explosion. To stem their losses, the short sellers sold some of their nickel contracts. “Some market participants who have been betting on falling prices have apparently been surprised and caught on the wrong foot by the price increases and dynamics since the Ukraine invasion by Russia,” Commerzbank commodities expert Daniel Briesemann told dpa.

London Metal Exchange takes action – and faces criticism

After the nickel price in London temporarily jumped to over 100,000 US dollars per tonne, the metal exchange took action and paused trading in the heavy metal for a week. In addition, transactions made during the sharp rise in the price were dissolved. According to the NZZ, this should have been about 5,000 orders worth a total of 4 billion US dollars. Although the LME stated that it wanted to protect investors who speculated with this step, the restrictions caused criticism among dealers, as the newspaper reports. Some investors suspected that the LME, which is a subsidiary of the Hong Kong Stock Exchange, might be under the influence of Tsingshan founder Xiang Guangda and therefore had stopped trading. The metal exchange has thus given up its neutrality.

Nickel trade still problematic

But even when nickel trading resumed, there were a few challenges on the metal exchange: After trading had been suspended for a week, transactions should only be possible within a certain price range in order to prevent renewed price swings. Apparently, some traders were able to circumvent the limitation in the electronic trading interface, after which the online system was completely disabled. Now only trading by telephone was possible. The LME has wanted to abolish such a “ring” in which traders call each other prices for some time. However, traders protested, arguing that the electronic trading system could not handle the volume of transactions and trading would have to be suspended altogether in the event of a failure.

In addition, the price framework has been adjusted since trading resumed after strong price action led to renewed suspension.

Russia is one of the world’s largest nickel exporters

However, the rise in the price of nickel was not only due to a general increase in raw material prices in an environment of high inflation rates, but is also to be seen as a result of the war in Ukraine. As the Federal Institute for Geosciences and Natural Resources explains in a publication about the metal, Russia is the most important mining country for nickel after Indonesia and the Philippines. The Russian mining company Nornickel is also considered the largest nickel exporter. According to “Capital”, nickel was already in short supply before the war began, and discussions about stopping Russian oil and gas supplies are also fueling speculation about similar restrictions on nickel.

Tesla boss Musk calls for more nickel mining

According to Capital, the production of batteries for electric cars only accounts for a small part of the total demand for nickel, but the metal is essential for manufacturers like Tesla. According to the Reuters agency, company boss Elon Musk warned of a nickel shortage as early as 2020 and called for more mining opportunities. “Tesla will give you a huge, long-term contract if you mine nickel efficiently and in an environmentally friendly manner,” Musk told the public at the time. In order to become less dependent on Russian nickel supplies, the EU now wants to increase the useful life of batteries before they have to be disposed of. “The recycling of valuable and environmentally critical substances in batteries will be a key to a sustainable and competitive industry that should be at the top worldwide,” said SPD member of the European Parliament Ismail Ertug, according to the “Tagesschau”. This should increase the proportion of recycling to 90 percent in the next few years.

In addition, nickel is also used in the production of stainless steel and coins.

Editorial office finanzen.net

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