Nickel! What Makes it Surpass $100,000 per ton? Wall Streeters Give These Reasons

On March 7-8, the price of nickel was in flying mode, soaring nearly 250% in two days, breaking several integer barriers such as 50,000, 60,000 and 70,000, and surpassing the $100,000/ton mark in one fell swoop to set a new record high. The metal's previous all-time high was $51,800 in 2007.

The London Metal Exchange (LME), the world's largest metal exchange, issued two announcements in a row on March 8 local time, first announcing the suspension of nickel trading, cancelling all nickel trades executed on the OTC and LME select screen trading systems at or after 00:00 a.m. UK time on March 8, and postponing delivery of all spot nickel contracts scheduled for delivery on March 9.

The LME issued another announcement during the U.S. midday session A further announcement said that due to uncertainty in the wider market, nickel trading is not expected to restart before March 11, and a 10% stopping mechanism is to be set when trading resumes.

The LME said it has been closely monitoring the impact of the situation in Ukraine on its trading market, noting the recent low inventory and price volatility of its trading metal varieties, especially nickel. the LME said it will actively plan for the reopening of the nickel market as a next step and will announce the mechanism to the public as soon as possible.

So what makes nickel prices soar?

Analysts: the volatility of the price of nickel in London is not yet over

Some industry insiders said that even in the case of the stock and supply of LUNI, there is such a huge increase in a single day, it is difficult to explain from the perspective of supply and demand, behind or there is a forcing factor.

In the process of the unilateral rampage of nickel, Castle Peak Holdings was squeezed position news also continue to ferment. Market rumors abound that Castle Peak holds 200,000 tons of nickel futures contract short orders, due to the lack of spot can not be delivered and squeezed by foreign traders. "Foreigners do have some action and are actively coordinating. We received many calls today."

The actual controller of Qingshan Holdings, Xiang Guangda, responded exclusively to the First Financial Reporter on the evening of the 8th, saying that there is no problem with Qingshan's position and operation.

Edward Moya, a senior market analyst at brokerage firm Oanda, said in an interview with the First Financial Reporter during the U.S. stock market on the 8th that if the news that Qingshan Holdings holds a large number of short positions is true, from the nickel price performance, Qingshan may have been forced to close some of its short positions, and he expects that the price volatility of LN is not yet over.

Qingshan Holdings is a private enterprise specializing in stainless steel production, upstream resources for ferronickel business, layout of Indonesia laterite nickel ore. Some analysts say that usually, when hedging raw materials, producers will open short positions to hedge the risk of future price declines, which is the reason why Castle Peak Holdings holds short positions.

In the case of the continuous surge in the price of nickel, if the green mountain continue to hold short orders, it is necessary to increase the contract margin or move the position of the far month contract, it will take up a lot of corporate cash flow; if you choose to close the short position directly, be forced to close will face huge losses.

Goldman Sachs commodity research director Currie (Jeff Currie) said that short position holders panic to close their positions, is one of the reasons for the spike in transactions. He also stressed that there are reasons to be bullish on nickel prices because it is a clean metal used in battery manufacturing for electric vehicles and demand is strong though inventories are low. "So over the past few days, nickel, like many other commodities, has been in its normal upward path." He said.

Moya also told Firstrade that nickel is a key metal for batteries in electric vehicles and palladium is a key raw material for chips, and that "too much metal and energy comes from Russia, which means the supply chain in the semiconductor sector may take longer to normalize." Russia is the world's third largest producer of nickel, accounting for about 9-11 percent of global nickel ore supply, as well as the world's largest producer of palladium, accounting for about 40 percent of global production.

Europe and the U.S. have stepped up sanctions against Russia, causing Russian nickel exports to be hampered, supply to decrease and prices to soar. According to Morgan Stanley's calculations, the spike in nickel prices has raised the cost of electric vehicle manufacturing by about $1,000. Currently, lithium, nickel (ternary cathode) and aluminum (structural parts, components) related to electric vehicles are at historically high levels.

Curry also noted a liquidity crisis in commodity markets, including crude oil, natural gas, metals, and agricultural commodities. High price volatility is discouraging market participants, so liquidity is reduced, and low liquidity further exacerbates volatility.