LME halts nickel trading after unprecedented 250% spike

The London Metal Exchange suspended trading in its nickel market after an unprecedented price spike.

The London Metal Exchange suspended trading in its nickel market after an unprecedented price spike left brokers struggling to pay margin calls against unprofitable short positions, in a massive squeeze that has embroiled the largest nickel producer as well as a major Chinese bank. 

Nickel, used in stainless steel and electric-vehicle batteries, surged as much as 250 per cent in two days to trade briefly above US$100,000 a ton early Tuesday. The frenzied move -- the largest-ever on the LME -- came as investors and industrial users who had sold the metal scrambled to buy the contracts back after prices initially rallied on concerns about supplies from Russia.

A Chinese tycoon who built a massive short position in the nickel market is facing billions of dollars in mark-to-market losses as a result of the surge in prices, according to people familiar with the matter. 

The debacle will raise memories of the LME’s darkest period, the “Tin Crisis” of 1985, which saw the exchange suspend trading in the metal for four years and pushed many brokers out of business. That was driven by the collapse of the International Tin Council, a body backed by 22 governments that fell apart when it could no longer keep propping up prices.

“This is second only to the tin crisis,” said Malcolm Freeman, a broker at Kingdom Futures who began his career on the LME in 1974. Suspending trading “was the right thing to do, and my gut feeling is that they’ll probably look at canceling today’s trades too.”

Traders, miners and processors often take short positions on the exchange as a hedge for their physical stocks of metal. In theory, any price moves in the physical stocks and the exchange position should cancel each other out. But when prices rise sharply, anyone holding a short position on the exchange needs to find ever-greater sums of collateral to pay margin calls.