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.
Nickel price jumped by the 15% daily limit on the London Metal Exchange, adding to a string of sharp price moves as the market seeks to reset following an unprecedented short squeeze and week-long trading halt.
Prices were 14% higher after briefly hitting the new intraday limit that the LME introduced this month to help stabilize the market. While nickel futures reopened on March 16, trading had been effectively frozen until yesterday, as the metal plunged by the limit at the open each morning.
Nickel prices soared 250% over two trading sessions in early March, touching a record $101,365 a tonne amid a short squeeze focused on China’s Tsingshan Holding Group Co. Following a series of interventions by the exchange, including the weeklong suspension and the cancelation of billions of dollars of trades at the highest prices, the market then plunged. It is now down about 70% from the record high, but up more than 30% from the start of the month.
Trading started slowly on Wednesday but gained pace as prices spiked toward the limit, with more than 2,600 contracts changing hands by 10:25 a.m. While Tsingshan has struck a deal with its banks to avoid further margin calls, there are still a large number of bearish bets in the market that need to be unwound — and at a time when fears over supply are growing.
Prices are now broadly in line with nickel contracts on the Shanghai Futures Exchange, which rose less sharply during the turmoil in early March, and tumbled amid a broad selloff across commodities during the weeklong suspension on the LME.
Trading is becoming increasingly illiquid on the LME, with many investors looking to liquidate their positions in the wake of the metal’s unprecedented volatility.
Metals trading on the Shanghai futures market has also started to go quiet, with investors growing cautious as China battles to control the spread of Covid-19 in its industrial heartland.
China, the world’s largest base metals producer, and consumer is fighting its worst coronavirus outbreak in two years. Lockdowns in the country’s industrial bases, such as the top steelmaking hub of Tangshan as well as the commercial center of Shanghai, have hit all aspects of life, from logistics to manufacturing to consumption.
Nickel traded 14% higher at $32,240 a tonne at 10:36 a.m. local time. Zinc rose 2.6%, while copper climbed 0.7%. Shanghai nickel contracts closed up 2.5% at 212,000 yuan a tonne.
(By Mark Burton, Jack Farchy and Alfred Cang)
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