Nickel slides as LME glitches fuel more market mayhem

By Pratima Desai

LONDON (Reuters) – The London Metal Exchange’s (LME) benchmark nickel contract slumped to its daily limit for the second day in a row on Thursday and traders said it would probably continue to slide until it reached parity with the price of the metal in China.

As on Wednesday, the exchange’s electronic system LMEselect was hit by technical glitches with some traders unable to enter nickel orders ahead of the open at 0800 GMT. To iron out the disruption, electronic trading started at 0845 GMT instead.

“This is unreal,” said one metals trader, questioning how the LME could allow trading to be disrupted so badly for two days on the trot.

The LME suspended nickel trading on Tuesday last week after prices spiked by more than 50% to over $100,000 a tonne and it resumed trading on Wednesday with an adjusted starting price of under $48,000 and a limited trading range of 5% either side.

Three-month nickel fell 5% on Wednesday and even though the LME widened the trading range to 8% for Thursday, it quickly dropped to its limit of $41,495. For Friday, the limit-down level will be around $38,590 a tonne.

For the second day running, the LME said there would be no official settlement price for nickel. The settlement price is determined during open outcry trading on the exchange floor, but nickel fell to its lower limit without any trades taking place.

The physical market, which is made up of end-users and producers, use LME settlement prices as a reference for their contracts to buy and sell nickel.

While LME nickel was suspended for a week, trading in the metal continued on the Shanghai Futures Exchange (ShFE) and prices there have been falling steadily to trade at around 219,440 yuan, or $34,550 a tonne, on Thursday.

“We suspect that there will be more limit-down sessions, until the market finds an equilibrium level,” ED&F Man Capital Markets analyst Edward Meir said. “We will not know where they will stabilise until the limit down moves fully play out.”

Meir expects equilibrium when LME nickel prices reach the levels on the Shanghai exchange, after an adjustment for costs such as transport, insurance, import duty and other fees.

Graphic: Nickel prices- https://fingfx.thomsonreuters.com/gfx/ce/movandxmjpa/nickel.PNG

‘GRIN AND BEAR IT’

LME nickel prices are used as a reference for deals between end users of the metal and producers, and the disorderly market resumption left some traders questioning whether participants might look for alternative venues.

“We should probably expect one possibly two more days of limit down,” a metals trader said. “Unless they widen the band to 15% to bring it in line with other metals, then tomorrow it may be all over.”

The price of nickel, which is used to make stainless steel and is a key material in electric vehicle batteries, had been rising steadily even before the conflict in Ukraine ramped prices on concerns about threats to Russian supplies.

Russia accounts for about 10% of global nickel output and traders have been concerned that supplies could be constrained by Western sanctions on Moscow.

The rapid rise in prices caught out some large players who were betting on a decline in nickel. To cut their positions and limit their losses, they bought large amounts of the metal last week, triggering the spike above 100,000 a tonne.

Many users of the LME nickel market agreed with its decision to temporarily suspend trading on March 8, when the massive buy orders created a disorderly market. Others disagreed.

“The LME shouldn’t have done it. It’s a market place for buyers and sellers of metal,” a metal trading source said. “If you’ve taken a position you are being squeezed on, then you have to grin and bear it. It’s not for the LME to bail you out.”

(Reporting by Pratima Desai, additional reporting by Zandi Shabalala; Editing by Jason Neely and David Clarke)