Background information on the suspension of nickel prices on the LME

Update 01.04.2022:
The nickel price has settled at $ 33,000/t on the LME in the last few days. Thus, trading seems to have returned to normal and is moving in an orderly manner and our alloy surcharge forecasts have regained their usual accuracy.
Update 25.03.2022:
Apparently the market is not as bearish as assumed, so that nickel on the LME is currently (intraday) settling at around $ 35,000 - 36,000/t. It remains to be seen whether the fundamental traders will drive the price down or whether the more emotional trading participants will have the upper hand and allow the price to rise further.
Update 22.03.2022:
The LME has the problem that the very high starting point of 7 March ($ 42,995/t) is not fundamentally justified, but arose due to the short squeeze.
It is now trying to get back into normal trading with predefined fluctuation margins.
The way this works is that they set a fluctuation range, initially 5%, now 15%. If these limits are breached with downward trades, only an unofficial price is given and the new fluctuation band of the next day applies to this, lower value.
Thus, the unofficial price decreases daily until the market price is reached at some point.
In our opinion, this should happen shortly, when we reach the pre-crisis level of $23,000 - $25,000/t
17.03.2022
Excesses in the nickel market
On 08.03.2022 the LME experienced an extreme price swing of up to $100,000/t. Trading was then suspended on the LME and later also on the SHFE (Shanghai) and some transactions and buy and sell orders were retroactively cancelled. The price was provisionally set at around USD 48,200. An opening of nickel trading was linked to criteria, such as a maximum price deviation from the last price, which had to be met before trading could resume. These conditions were met for the first time on 16.03.2022 and trading opened on the LME. A price range of +/- 5% from the previous day's price was agreed for the start on 16/03. However, the price range of -5% was not fulfilled for all trades, so that for 16.03. there was again only a provisional price (-5% of the previous day's price) and the price range for 17.03.2022 was extended to +/- 8% in order to get into normal trading as
quickly as possible.

How the price will now develop remains to be seen. However, it seems clear that the price peak on 08.03.22 was a speculative exaggeration and that the nickel price could move towards $ 30,000/t again.

You can find the current reports and course dates of the LME under this link: https://www.lme.com/Metals/Non-ferrous/LME-Nickel#Price+graphs

Possible causes of the turbulence in nickel


As is so often the case, there are several reasons that led to the current situation.
Firstly, the nickel market has come under strong pressure due to the Ukraine war, as there was a risk of sanctions being imposed on Russian nickel producers. To our knowledge, this has not happened to date, but there was panic buying, which put pressure on the nickel price.

Secondly, these price increases put pressure on the largest nickel producer, Tsingshan Holding Group in China, as they had hedged their production with short positions against price fluctuations. Due to the extreme increase in nickel prices, the costs of hedging became so high that some positions had to be liquidated. Closing out a short position can only take place with additional purchases, which then also caused the price to shoot up in the short term.
This behaviour, known as a short squeeze, has been seen more often on the stock market. A popular example was the VW share price in 2008, which rose to a spectacular 1000 €/share in one day. Usually, after the short squeeze has passed, the price settles at a slightly higher level than before.
The nickel market is a small market compared to other commodity markets and therefore reacts very sensitively, as we have seen time and again with price jumps due to actions by individual participants.

The first (provisional) nickel prices after the opening of trading on the LME clearly show that the high prices on March 8th, 2022 were speculatively excessive.

In which direction will the nickel move now?
If you look at the Shanghai stock exchange, which has been open for days, you see prices at the equivalent of around $35,000/t. In our opinion, this would be the first goal. It remains to be seen whether it will go down further.

Alloy surcharges initially increase.
The impact on the alloy surcharge is delayed. We expect near-term historic highs, but these will probably not last, so that the alloy surcharge will fall in the medium term. Also because Indonesia, among others, announced its intention to completely compensate for the possible loss of nickel volumes from Russia. For this purpose, significant production volumes are to be expanded in the short term. Whether all the necessary nickel grades can be offered, however, was left open by Indonesia, but presumably lower-quality grades will be thrown onto the market.

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