The London Metal Exchange suspended trading in its nickel market following an unusual price rise that left brokers unable to make margin calls against extremely unprofitable short positions.
Nickel, which is used in stainless steel and electric car batteries, climbed up to 111 percent on Tuesday, momentarily trading above $100,000 per ton. The frantic move, the largest-ever on the LME, occurred as investors and industrial consumers who had sold the metal scrambled to buy the contracts back after prices initially rallied on concerns about Russian supplies, while brokers rushed to collect margin payments to cover their deeply unprofitable positions.
According to persons familiar with the subject, the big nickel short squeeze has engulfed a major Chinese bank as well as the world’s largest nickel producer. Xiang Guangda, a Chinese entrepreneur known as “Big Shot,” has held a significant short position on the London Metal Exchange for months through his business, Tsingshan Holding Group Co., the world’s largest nickel and stainless steel manufacturer.
Tsingshan has been under increasing pressure from its brokers to pay margin calls on that position in recent days, a market dynamic that has contributed to the rise in prices.
The LME granted an extension of time to a unit of China Construction Bank Corp., one of Tsingshan’s brokers, to pay hundreds of millions of dollars in margin calls that were missed on Monday. CCB International Holdings did not answer to demands for comment immediately, while Tsingshan officials did not react quickly on Tuesday.
Prior to the suspension, nickel had recovered some of its losses and was trading at a 66 percent higher price of $80,000 a ton. Following the statement, other metals on the LME fell.
The London Metal Exchange (LME) initially confirmed rule changes late Monday in response to a daily spike of up to 90%, allowing traders to defer delivery commitments on all of its main contracts, including nickel, in an unusual move for a 145-year-old institution that bills itself as the “market of last resort” for metals.
The action, however, failed to address the primary source of the squeeze, which was that market players with short positions were being compelled to close them due to margin calls.