Nickel surges to stop trading

The price rise threatens to reduce metal consumption

An unprecedented jump in nickel prices, which grew by 2.5 times, to the historic $100,000 per ton, in one day, led to the metal trading halt on the London Stock Exchange.  Investors were afraid of interruptions in supplies from Russia. The suspension of trading is unlikely to affect the long-term contracts of MMC Norilsk Nickel.  But if the price remains at these levels, analysts expect serious negative consequences for metal consumption.

The suspension of nickel trading on the London Metal Exchange (LME) after a 150% jump in prices will not have a significant impact on the execution of Norilsk Nickel's contracts with consumers, Kommersant's sources in the industry say.  According to them, long-term contracts are formed on the basis of LME quotes for a certain period, while the current price jump looks short-term.

Trading on the LME was suspended on Tuesday, March 8, for the first time since 1985 that the exchange stopped trading in tin contracts.  Nickel has more than doubled in price to $100,000 per ton due to investors' fears about possible interruptions in supplies from Russia, although so far no sanctions have been imposed against Norilsk Nickel.  The situation was aggravated by the fact that one of the world's largest nickel producers, the Chinese Tsingshan Holding Group Co faced a margin call on his short position and was forced to close it.  The Chinese media reported about $8 billion in losses caused by this.

Nickel trading is unlikely to resume before Friday, the exchange said in a statement.  After the opening, trading will be carried out only during the opening hours of European exchanges, plus a ten percent limit on the daily fluctuation of quotes will be introduced.

Norilsk Nickel officially declares that it continues to produce and sell metals, despite unprecedented new challenges.

“We are facing global financial instability, turbulence in our traditional markets, severe logistics constraints,” the company said in a statement. According to the materials by Norilsk Nickel Strategy Day, a 10% change in the price of nickel from the base level of $17,917 thousand has an effect on annual EBITDA of $352 million. Thus, with a nickel price of $100 thousand, the effect on EBITDA is $16.1 billion

However, the company may face diversification of purchases from Western clients.  Thus, the key consumer of Norilsk Nickel's palladium, the German concern BASF, intends to fulfill existing contracts, but will not launch new projects with Norilsk Nickel.  The parties are cooperating at the site of the Finnish MMC Nornickel Harjavalta, which processes Nornickel's Russian raw materials. The nickel and cobalt raw materials are then supplied for battery production to a nearby BASF plant.  Finnish Outokumpu Oyj, which is one of the world's largest stainless steel producers, began looking for alternative nickel suppliers, the Wall Street Journal writes.

Nickel has been rising in price against the backdrop of a shortage and non-stop decline in stocks of this metal on the largest exchanges since March 2021, the Center for Economic Forecasting (CEP) of Gazprombank notes.

Current nickel inventories are at multi-year minimums, while the market has grown fears of disruptions in supplies from Russia, which provides 5% of nickel production in the world and about 10% of nickel production, analysts write in their Telegram channel.

Before this, the price of nickel rose above $40,000 per ton only in 2007.  According to CEP, this event had a significant long-term impact on the market: stainless steel consumers began to switch to alloys with a lower nickel content, and high prices gave impetus to the development of nickel deposits in China and Indonesia.  As a result, by 2016, nickel fell in price to $9.6 thousand, which made more than half of the world nickel industry unprofitable.

The nickel market improved only after the restriction of exports of raw materials from Indonesia and the development of the market for electric vehicles.  According to the CEP, the current significant price increase could lead to serious problems in the production of stainless steel and special steels, as well as in the production of components for car batteries.


Source: Kommersant