Nickel Tops $100,000 as Big Short Tests 145-Year-Old Exchange

(Bloomberg) — Nickel spiked briefly above $100,000 a ton on the London Metal Exchange amid a short squeeze that’s embroiled a major Chinese bank and encouraged rule changes from one of the world’s top commodity exchanges.

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The material used in stainless steel and electric-vehicle batteries surged as much as 111% to $101,365 a ton after closing up 66% the day before. It pared gains to be up 74% at $83,500 a ton as of 3:10 p.m. in Shanghai.

The market on the LME is in the grip of a massive squeeze in which holders of substantial short positions are being forced to cover at a time of low liquidity. To give a sense of nickel’s dizzying surge, it has risen around $11,000 a ton over the last five years. This week alone, it’s jumped by as much as $72,000.

“It’s going crazy — it’s not reflecting any industry fundamentals,” said Jiang Hang, head of trading at Yonggang Resources Co. The “LME trading system is out of control and requires intervention,” or the contagion may spill over to other metals, he said.

Late Monday, the LME decided to allow traders to defer delivery obligations on all its main contracts — including nickel — in an unusual shift for a 145-year-old institution that touts itself as the “market of last resort” for metals. The LME also gave a unit of China Construction Bank Corp. extra time to pay hundreds of millions of dollars in margin calls that were due Monday, according to people familiar with the matter.

Nickel was already rallying on tight supplies even before Russia’s invasion of Ukraine, which has sharpened fears of sweeping commodity shortages. Higher nickel prices, if sustained, threaten to ratchet up costs for electric-vehicle batteries and complicate the energy transition. Russia produces 17% of the world’s top-grade nickel.

“What we do know is that markets tend to over-react a little bit, they sometimes over-shoot,” Gavin Wendt, analyst at consultancy Mine Life Pty in Sydney said. “But in this instance, with the uncertainty of war, it’s hard to talk about a commodity being over-valued.”

The missed payments from CCBI Global Markets — the unit of China Construction Bank — aren’t necessarily an indicator of any problems at the parent company, which is one of China’s largest banks. It’s more likely due to a failure by one of the subsidiary’s metals-industry clients failing to make margin payments, according to one of the people familiar with the matter.

CCBI Global is a broker on the LME’s open-outcry trading floor.