Column: Electric dreams turn into a nightmare for battery metals
A sector that was once racing to build new supply has been closing mines and deferring projects as low prices bite into the cost curve.
The London Metal Exchange’s (LME) benchmark nickel contract fell again on Tuesday but for the first time since resuming trade on March 16 the contract didn’t hit its downside limit and metal was changing hands.
The pick-up in activity suggests the market is starting to return to normal after two weeks of chaos in which the world’s most important nickel trading venue endured a price surge followed by a six-day trading suspension and a problematic restart hit by technical glitches.
LME three-month nickel tumbled as much as 13.9% to $27,020 a tonne just after Tuesday’s market open at 0800 GMT before hitting around $28,800, down 8%, by 1525 GMT.
The exchange suspended nickel trading on March 8 after a Chinese company, Tsingshan Holding Group, bought large amounts to reduce short bets, pushing prices up by more than 50% in a few hours to over $100,000 a tonne.
Trading of the metal used in stainless steel and electric vehicle batteries resumed on March 16 with an adjusted starting price of under $48,000 and a daily down limit that started at 5% and was later increased to 15%.
Trading has hit these limits immediately after the market open each day since, with only a few contracts changing hands.
By 1525 GMT on Tuesday, around 13,000 contracts representing 78,000 tonnes of nickel had traded – compared to around 9,000 contracts a day on average between the start of this year and March 8.
Traders had expected prices to fall until they reach the levels on the Shanghai Futures Exchange (ShFE) after an adjustment for costs such as transport, insurance, import duty and other fees.
Nickel on ShFE ended Tuesday down 3% at 196,200 yuan ($30,860) a tonne.
“You could argue that it’s mission accomplished (for the LME), but it’s left the market bloody and bruised,” Saxo Bank analyst Ole Hansen said.
The turbulence has led to anger among some traders, but frustrated investors who may want to shift their business elsewhere have found that there are no quick and easy alternatives.
The Nickel Institute, a producers’ association, called for the LME to “push harder to rebuild market confidence” and implement safeguards against such chaotic trading.
“The current situation is causing major reputational damage for both the nickel industry and the LME with the potential for a loss of confidence and demand destruction for nickel growing by the day,” it said.
The LME in a statement said it was “committed to learning lessons from these events in order to prevent such a situation from happening again.”
The exchange said it was considering measures including maintaining 15% limits on price moves and increased oversight of trading off the exchange between banks and traders and their clients.
($1 = 6.3578 Chinese yuan renminbi)
(By Peter Hobson; Editing by Louise Heavens, Susan Fenton and Mark Porter)
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