By Steve Fiscor
This week, metal traders saw the London Metal Exchange (LME) take unprecedented actions. In response to the sanctions being imposed on Russia for its attack on Ukraine, prices for nickel began to surge. On Monday, March 7, nickel prices on the LME closed at $48,078 per metric ton (mt) or $21.85/lb, an increase of 109% from where it stood this time last month ($22,991/mt or $10.45/lb). During trading the following day, nickel prices more than doubled immediately to more than $100,000/mt ($45.45/lb) before the LME suspended nickel trading at 8:15 a.m.
The LME has not suspended trading in more than 20 years. The last time this occurred was in 1996 when a trader from Sumitomo tried to manipulate copper prices. The LME issued a statement and said, “the current events are unprecedented,” noting the suspension of nickel trading has created a number of issues for market participants. The exchange said it did not anticipate resuming nickel trading earlier than March 11.
What spooked the market was the potential impact sanctions would have on Nornickel, a major nickel miner based in Russia, more commonly known as Norilsk Nickel. The company claims it produces 22% of the world’s nickel supply, mostly from its mines and smelters in Russia. That figure is debatable, but there is no doubt that Nornickel is the world’s nickel leader. The company is also the No. 1 producer of palladium, supplying 40% of global demand, a critical ingredient for catalytic converters. It’s the No. 3 producer of platinum and largest platinum producer outside of Africa and a significant copper and cobalt producer.
This could be a tempest in a teapot and the LME will eventually sort it out. A Reuters report shed some light on the situation saying that traders holding significant short position on nickel were forced to buy large amounts of nickel in an escalating price environment to cover expensive margin calls. They were essentially “caught short.” Nickel buyers short the market, which is a risky strategy used to assert leverage over prices.
Ironically, an article in the Wall Street Journal, pointed out that sanctions have not been imposed on Nornickel CEO Vladimir Potanin, who holds a 31% stake in Nornickel. Western sanctions, however, could cause Nornickel’s customers to look elsewhere for raw materials. While the market frets about battery grade nickel, the more important concern is stainless steel. A 20% loss of nickel supply would wreak havoc on steel markets.
