Brother Can You Spare a Nickel?

Key Takeaways:

• Nickel prices at the London Mercantile Exchange (LME) spiked out of control last week, forcing the exchange to close until yesterday.
• One particular trader, who owns a nickel company, appears to be at the center of the event.
• Since the LME reopened, nickel prices have plunged.
• Nickel prices are a key input for stainless steel and electric vehicle batteries.

What were you doing at 5:42 a.m GMT on March 8, 2022?

If you were Nickel, then you were busy stomping on the hearts of traders at the London Mercantile Exchange (LME).

Cardiac Arrest

Rarely do any of us care let alone know the price of Nickel. In the last decade, it traded between $10,000 to $20,000 per ton.

The day before, the price of Nickel jumped 66% to $48,078. By 6:00 a.m. it passed $100,000 a ton.

You might be asking so what?

A 250% rise in price in less than 48 hours triggered billions of dollars in losses for traders, forcing the LME to suspend trading for the first time in 30 years.

One particular trader, Chinese tycoon Xiang Guangda, held massive short positions in his company Tsingshan Holding Group Co., one of the world’s largest nickel producers. On paper, his losses hit at least $2 billion BEFORE the nickel market broke.

He’s still holding his position explaining that his company will benefit from the higher nickel prices should they remain elevated, which would offset his losses.

However, to cover his losses, Xiang bought up massive amounts of nickel which sent prices soaring.

The LME made the unprecedented decision to cancel all the trades that took place Tuesday morning worth $3.9 billion, according to Bloomberg.

And that upset a lot of parties including Goldman Sachs. Others are calling for the death of the LME, which has survived scandals in the past including the 1985 tin crisis that caused many brokers to go broke.

Nickel & Stainless Steel

Nickel is a major input into stainless steel.

Spain’s Acerinox, the world’s fourth largest stainless steel maker, halted acquisitions of nickel and crafted a furlough plan for 1,800 workers at its Cadiz plant.

Other steel plans in Spain and the rest of Europe have reduced steel output. 

Nickel is also a key material in electric vehicle batteries.

And as you might expect, Russia accounts for 10% of the world’s nickel output.

Where Are We Now?

Trading resumed a week later on the LME where Nickel hit a limit down for two sessions in a row.

Limit down happens when the price of a particular asset drops too much too fast. Circuit breakers stop the trading immediately to give markets a chance to stabilize.

Traders expect prices to tame over the next few weeks.

The Bottom Line: The problems at the LME haven’t spread elsewhere. Despite a few stories of production problems, the majority of stainless steel and nickel businesses are business as usual.

However, the shortage of nickel inventory is real. We’re at some of the lowest levels since 2019. Russia’s impact will keep prices at higher than average for the foreseeable future.

Unfortunately, there aren’t any U.S. public companies that engage specifically in nickel mining. However, you can look at broader miners such as Rio Tinto (RIO) or Bhp Billiton (BHP) as a way to play the recent commodity boom.

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