LME suspends nickel trading once again on systems error
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On Monday, February 28, 2022, traders, brokers, and clerks were seen on the trading floor at London Metal Exchange, London, U.K.
Chris J. Ratcliffe | Bloomberg | Getty Images
LONDON — The London Metal Exchange said Wednesday it had been forced to halt the nickel market once again after a “systems error” allowed a small number of trades to go through below its newly imposed daily price limit.
LME saidIt is currently investigating the problem and will attempt to open the nickel market again as soon as possible. The company stated that trades below the daily limit will be cancelled.
LME is facing another humiliating setback with the recent suspension of nickel trading. It is the world’s largest center for industrial metals and the most important venue to set prices.
Following extreme market volatility, LME Nickel Trading Contracts were reopened at 8 AM London Time.
Nickel prices more than doubledOn March 8, one of the largest producers in the world, bought large quantities of steel to decrease its short positions on the metal and climbed to over $100,000 per metric tonne within hours.
The situation led to a sharp price rise at a time metals were already soaring higher due to Russia’s escalated conflict with Ukraine.
LME Wednesday set trading limits at 5% over or below last week’s close price. It had previously indicated that bids exceeding these limits would be refused.
Matthew Chamberlain (CEO of LME), stated that the company is “absolutely aware” of the negative impact this had on many and that they need to prevent it from happening again. He spoke on Wednesday on CNBC’s SquawkBox Europe. He made these remarks shortly after the nickel market was reopened.
Chamberlain stated that the LME “deliberately prioritized stability”, setting relatively tight trading limits for daily trading. However, these may be widened soon if there is a more orderly market.
On account of supply concerns about Russia’s invasion of Ukraine and a host of Western sanctions, commodity prices rose.
Russia, along with energy, is also a major producer and exporter metals and grain. Indeed, Russia is the world’s third-largest producer of nickel — a key ingredient in stainless steel and a major component in lithium-ion batteries.
“Sick to the stomach”
Chamberlain explained that while it was stressful with the current prices, there is some hope. “If we all behave responsibly as I believe the market is doing now as we reopen Nickel in an orderly fashion, then I don’t think stability should be affected.” Chamberlain added.
Tsingshan, a Chinese metals company, announced Monday that it reached a “standstill” agreement with banks in order to end a nickel bet that sent markets into chaos last week. Nickel giant could suffer losses in the billions from its position shortfall.
An investor who bets that the asset’s value will fall by short selling is called bearish investing. When a lot of investors short an asset, it causes the price to rise sharply. Investors then lose money and have to exit the positions. Short squeezes push prices higher because buy orders are required to exit a short position.
Ole Hansen, from Saxo Bank, told CNBC Tuesday that he was expecting to see “horrible” as the LME opens the nickel market.
Hansen explained that many people were sickened by the behavior of the market last week, but that they hope this will wake them up. They are stuck in the past.
“Hopefully, it will bring long-overdue reforms. You should not have a pit with 20 people shouting and screaming — that is just a relic of the past. It’s all a relic of the past,” he said.
We need to stabilize contracts so that liquidity is concentrated. By doing this, there are fewer spikes and you can attract more market participants, which in turn reduces the chance of such sharp squeezes.
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