(OP)inions Nickel volatility

March 18, 2022 

The London Metal Exchange market for nickel futures saw unprecedented action last week. Nickel prices shot up due to margin calls and forced buying by some big short traders, and in response the LME canceled $3.9 billion of trades, rolled back the price to pretend the Tuesday morning session had never happened, and shut down trading for a week.  

Yesterday the LME reopened for nickel trading, but quite cautiously. LME said that it would only allow the price to move up or down by 5% from its previous close. That close was itself sort of artificial (since it ignored all the canceled trades from Tuesday). 

This was an unusual thing to do. The reason that LME suspended trading and canceled trades is that it thought (and many traders thought) that the market price of nickel futures did not reflect the “real” value of nickel, because of, essentially, glitches in the financing of some big nickel traders. The prices “were becoming disconnected from, I believe, physical reality,” said the head of the LME. 

Arguably the point of taking a whole week off trading was to let investors think about things, line up the appropriate financing, and come back ready to move nickel to the right price. There is no reason to think that last Monday‘s closing price of $48,078 per ton was the “right” price; that price already reflected some dislocation from short squeezes, and was up 66% from the previous week’s close. (It also did not reflect real trades that happened on Tuesday morning and then got canceled.)  

LME seemed to prefer risking global economic turmoil over crossing their partner in Moscow.  

OnePro Special Analyst

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