Limit up or limit down? Nickel traders are bracing for wild ride

The world’s main nickel market reopens Wednesday, a week after the LME stepped in dramatically to defuse a runaway short squeeze. Most traders say they expect prices are more likely to drop than to spike again -- but either way, they’re getting ready for fireworks.

The world’s main nickel market reopens Wednesday, a week after the London Metal Exchange stepped in dramatically to defuse a runaway short squeeze. Most traders say they expect prices are more likely to drop than to spike again -- but either way, they’re getting ready for fireworks.

Nickel was suspended on March 8 after prices rose 250 per cent in little more than 24 hours, largely as metals tycoon Xiang Guangda struggled to pay massive margin calls to his banks and brokers. The squeeze -- and the LME’s unprecedented decision to cancel several hours’ worth of trades -- has roiled the global metals industry and sparked heated criticism of the exchange. 

The market is opening after Xiang reached a deal with his banks to avoid further margin calls, reducing the risk that the squeeze is repeated. Nickel prices on the Shanghai Futures Exchange, the only real alternative to London, have dropped in the meanwhile, which could help take pressure out of the market when trading restarts. 

Out of 16 analysts and traders surveyed by Bloomberg, 13 predicted that nickel will drop by the new daily limit of 5 per cent that the LME announced this week to try and bring order to the market. One person said prices will go limit-up, while the other two said either scenario is possible.

“Whatever happens, I think it will be volatile,” Michael Widmer, head of metals research at Bank of America, said by phone from London. “It will probably go down, but there is still a residual bid in the market.”