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Nickel short squeeze: Tsingsham is back but battered LME volumes may prove a limit to producer’s ambitions

By  Yoke Wong

Edited by Vanessa Kintu

15:23, 4 November 2022

Pile of nickel ingots
Nickel is the fifth most common element found on Earth Photo: AlexLMX / Shutterstock

Nickel prices trading on the London Metal Exchange (LME) has fallen significantly over the past few months as restrictions cooled the turbulent market, pulling the metal down from its record high of above $100,000 a tonne on 8 March.

Following Russia’s invasion of Ukraine on 24 February, the three-month nickel contract rocketed to more than $100,000/tonne on 8 March, hitting an intra-day high at $101,365 on the same day. A week earlier, nickel was trading around $25,000 and the price of the metal has more than quadrupled in a matter of days. 

The new historic high is nearly twice the previous record of $51,600 in 2007. 

Nickel prices have since fallen and the three-month nickel last settled at $23,371/tonne on 3 November.

Nickel live price chart

Why is nickel going up so drastically in a short period of time? The sharp increase in nickel prices was driven by supply concern exacerbated by Russia’s invsion of Ukraine – Russia  is the third largest primary nickel producer after Indonesia and China. Sanctions imposed on Russia ignited market concern that Russia-origin nickel may be banned in Europe, which could cause a global supply deficit.  

Another key factor in the recent price volatility was the massive nickel short squeeze built up by China’s Tsingshan Holding Group, the world’s largest stainless steel producer. Tsingshan is also a nickel miner and operates nickel pig iron mines and production facilities.

Are you considering whether or not to trade nickel or want to learn more about the market? Read on for our analysis on the recent LME nickel short squeeze and the market outlook.

What is a short squeeze?

A short squeeze is a market condition caused by massive short positions. A ‘short’ position is created when a trader sells a security he does not own, with the intention of repurchasing it later at a lower price. Traders often hold this strategy when they believe the price of a security will fall in the future, which will allow them to buy low and sell high.

However, the short position holders have to pay a margin. This is a fee deposit with a counterparty (often the brokers or exchange) to cover some of the credit risk undertaken to take a short position.

What is nickel?

Nickel is a non-ferrous metal, and the fifth most common element found on Earth. Despite that, reserves that can be economically mined are limited. Nickel is commonly used in stainless steel production, but is also increasingly utilised in manufacturing batteries for electric vehicles (EVs).

Gold

2,358.05 Price
-1.630% 1D Chg, %
Long position overnight fee -0.0195%
Short position overnight fee 0.0112%
Overnight fee time 21:00 (UTC)
Spread 0.30

Oil - Brent

81.47 Price
+0.890% 1D Chg, %
Long position overnight fee 0.0200%
Short position overnight fee -0.0419%
Overnight fee time 21:00 (UTC)
Spread 0.032

Natural Gas

2.08 Price
-4.030% 1D Chg, %
Long position overnight fee -0.0680%
Short position overnight fee 0.0461%
Overnight fee time 21:00 (UTC)
Spread 0.0050

Oil - Crude

78.11 Price
+0.940% 1D Chg, %
Long position overnight fee 0.0327%
Short position overnight fee -0.0546%
Overnight fee time 21:00 (UTC)
Spread 0.030

According to industry members’ association International Nickel Study Group (INSG), stainless steel production accounts for over two-third of nickel demand in 2020, while the use in batteries for EVs remained low at 6%.

Nickel by use

The LME nickel short squeeze

Nickel 5-year historical performance

Nickel short interest was created by Tsingshan. The war in Ukraine surprised the market and led to a price surge, pushing Tsingshan’s margin to billions as it rose in-line with nickel prices. Creditors and banks who acted for Tsingshan were demanding margin settlements and the closing of all positions. This created an unprecedented LME nickel short squeeze.

In response to the crisis, the LME suspended nickel trading on 8 March and “cancelled all trades executed on or after 00:00 UK time on 8 March 2022 in the inter-office market and on LMEselect (LME online trading platform) until further notice.”

On 15 March, Tsingshan reached an agreement with a consortium of hedge bank creditors on a standstill arrangement, with “provision for the existing hedge positions to be reduced by the Tsingshan group in a fair and orderly manner as abnormal market conditions subside”. 

Nickel trading resumed on 16 March 2022. To limit price volatility the LME imposed daily upper and lower price limits of 15% for all its physically delivered metals. By April, nickel prices began to fall below $35,000/tonne and Tsingshan began to close its short positions and settled its margin calls.

If you are considering investing or trading nickel, it’s important to do your own research. Your decision to trade should depend on your attitude to risk, expertise in the market, the spread of your portfolio and how comfortable you feel about losing money. You should never trade more than you can afford to lose.

FAQs

Why did nickel short squeeze?

The LME nickel short squeeze was created by Chinese stainless-steel producer Tsingshan as it built up massive short positions for the metal, and its margin calls spike in-line with the surge in nickel prices in March.

What was the highest price for nickel?

The three-month LME nickel prices hit an intra-day high at $101,365 a metric tonne on 8 March 2022.

Is nickel a good buy?

Only you can decide whether nickel is a good buy or not. You should do your own research, looking at the latest news, technical analysis, and analyst commentary before trading.  Keep in mind that past performance is no guarantee of future returns. And never trade money that you cannot afford to lose.

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