The London Metal Exchange suspended electronic trading in nickel on Wednesday, just moments after the world’s main market for the metal reopened for business following a week-long shutdown.
Wednesday’s fresh trading halt came after the price of nickel tumbled when the market opened. Newly installed curbs to support the resumption were meant to prevent the price from declining by more than 5 per cent, but some trades appeared to have breached the limit of $45,590 a tonne, according to Refinitiv data.
The LME said it would halt electronic trading to “investigate” the issue, but that it would still allow in-person dealings later in the day around the famous red sofas on its Ring venue, and also through an inter-office telephone exchange between members.
The disruption comes during one of the most dramatic episodes in the 145-year history of the LME. Last week, several smaller LME members came close to failing after the price of nickel surged 250 per cent in two days. The sharp rally was caused in large part by Xiang Guangda, the tycoon behind Tsingshan Holding, China’s leading stainless steel group, who struggled to meet demands for extra cash on a huge bearish bet that backfired.
The LME suspended trading after the price surge on March 8 and also cancelled several hours of trades, triggering a furious backlash from hedge funds and electronic traders.
The exchange decided to resume trading — with price limits — after Xiang reached a deal with his banking counterparties to avoid further margin calls. Tsingshan has said it will reduce its short position in a “fair and orderly manner as abnormal market conditions subside.”
“Everyone knew the contract would be limit down immediately,” said Colin Hamilton, analyst at BMO Capital Markets. “You would have thought the LME and providers would have run a few tests for that scenario,” he added.
Ole Hansen, head of commodities strategy at Saxo Bank, said Wednesday’s trading halt was a “desperately sad situation” for the LME, which prides itself on being the leading global marketplace for metals trading.
“The limit was too small,” he said. “Shanghai is the de facto centre for price discovery right now.”
Nickel is used to make stainless steel but its fastest-growing market is in the batteries that power electric vehicles. Tesla’s chief executive Elon Musk has said nickel is the metal he worries most about.
Russia is a big producer of high-grade nickel used in batteries, and traders have been concerned that supplies could be disrupted by western sanctions on Moscow.
The price fall will be a relief for Xiang, who was facing billions of dollars of potential losses on his bearish bet, which he started building last year, as the price of nickel surged due to the war in Ukraine.
However, it is likely to irritate investors who were sitting on big profits last week, only to have their trade cancelled. On the day nickel was suspended it doubled to a record high above $100,000 a tonne.
Don Wilson, one of the world’s biggest derivatives traders, has hit out at the LME’s decision to cancel trades.
Wilson, founder and chief executive of DRW, a Chicago trading firm, described the move as “one of the most inept moves an exchange has made that I can think of.”
Wilson is an influential figure in the world’s futures markets and DRW an important source of revenue and volume for the world’s biggest futures exchanges, acting as a market maker and trading its own positions. He said DRW had small, immaterial positions in nickel.
“Busting trades is never a good idea because market participants who are trading often are trading these products against others, so if there’s some possibility that those trades are busted you can’t manage your risk,” he said.
He added: “You should never bust a clearly erroneous trade, you should adjust the price. We’re not talking about a clearly erroneous trade.”
LME said last week it had taken the decision to cancel trades “in the interests of the market as a whole”.
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