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Nickel prices swung sharply in barely-there volumes at the end of a tumultuous week on the London Metal Exchange, in which futures spent most trading sessions locked either limit-up or limit-down.
Since reopening on March 16, Friday was only the second day that the nickel market remained within the LME’s new daily price limits as it seeks to reset after a massive short squeeze sent prices spiking. But the extreme lack of liquidity in the market has left it exposed to erratic moves — prices rallied more than 9% and then fell as much as 7.4% in just the first 45 minutes of trading.
The ongoing turmoil in the market is raising questions about the role and future of the LME as the place where benchmark prices are set for some of the world’s most important industrial metals. The exchange has come under furious criticism for its handling of this month’s nickel crisis. And traders remain wary of the threat of another squeeze — there are still large short positions in the market that would have come under growing pressure during a two-day limit-up spike earlier in the week.
The LME suspended trading for a week and canceled billions of dollars worth of transactions earlier this month as it sought to rein in the runaway short-squeeze centered on China’s Tsingshan Holding Group Co. Tsingshan struck a deal with its banks to avoid further margin calls, allowing the market to reopen last week, and said it would reduce its short position in the future.
However, trading has been effectively frozen for much of the time since the market reopened last week, with prices falling by a daily limit for several days. While the market saw some real trading on Tuesday, the price surged limit up on both Wednesday and Thursday.
Futures hit a record of $101,365 a ton on March 8, before the LME halted trading and canceled the day’s deals, in a bid to ease the pressure on brokers and bearish position holders facing huge margin calls. Prices are still up 45% this month, set for the biggest gain since 1988, and the LME on Friday said it will nearly double the size of its default fund in response to the recent volatility.
Tsingshan owner Xiang Guangda started buying contracts on the London Metal Exchange to reduce his short bets as the nickel market briefly unfroze this week, Bloomberg reported on Thursday.
The move reduces the size of the potential pain for Xiang and his banks as prices are on the march again. However, the businessman and his allies have only reduced a portion of their total short position, and still hold large bets on falling prices, the people said.
And many other industrial consumers and physical traders also have large short positions in the market, data from the bourse show.
Nickel was trading 5.5% lower at $35,175 a ton as of 5:43 p.m. local time, having earlier slumped by $6,200 from its intraday high, in the second biggest intraday swing on record, excluding trading on March 8. Other metals were mixed, with copper falling 0.9% while zinc climbed 0.8%.
(By Mark Burton)
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