LME Nickel market (temporarily) in turmoil
In the early hours of the morning of the 7th March 2022 while the Asian trading session was underway, there was a serious “accident” in the nickel market of the London Metal Exchange (LME), for which, at first glance, the exchange was not sufficiently prepared. A disproportionately large short position on the exchange directly, but also over the counter (OTC), built up by a market participant with the help of brokers and banks caused turmoil. The recent increase in nickel prices, caused by supply fears in nickel due to the Russian/Ukrainian crisis had brought the dominant position so much in deficit that brokers and banks evidently got cold feet and demanded further margin calls from the position holder(s). As these were not paid immediately there was even greater unrest. Apparently, brokers and bankers began to liquidate the position in order to limit their own potential losses. In a tight market, this buying drove prices to dizzying, fully artificial heights on the 7th and 8th March. On the 8th March the LME then hit the emergency brakes and temporarily suspended LME nickel trading.
Before the nickel market gradually resumed trading on the 16th March with the introduction of narrow daily bands, according to recurring market information the financially quite powerful position holder and his banks had used the time to rectify the cause of the situation. It was no surprise, therefore, that the days following saw a decline in prices, within a daily controlled range set by the exchange, so that the market could be brought back to more stable levels. On the 21st March, the closing price was USD 31,380.00/mt. Since the market turbulence was much more than had ever been expected, criticism of the LME grew. However, it is still too early to make a judgement on the medium and long-term consequences of the LME nickel price as an internationally acknowledged price reference for the industry.