Nickel jumps 62% as supply risks in Russia lead to huge short squeezes

(Bloomberg) — The price of nickel surged 62% in one of the most extreme price moves ever on the London Metal Exchange, as concerns over Russian supplies left buyers under historical pressure. Other base metals were also higher, with copper and aluminum touching record levels before gains receded.

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Nickel, used in stainless steel and lithium-ion batteries, added more than $17,000 to trade at a nearly 15-year high above $40,000 a ton, in the dollar’s biggest daily gain ever in the 35-year contract history.

The metal’s rally is building on a 19% gain in the past week, as banks reduced their exposure to suppliers of Russian goods and major shippers moved away from the country’s major ports. Now, as the United States considers a possible ban on Russian oil imports, traders are questioning whether industrial consumers would choose to avoid buying other Russian raw materials, even in the absence of a direct ban on purchases.

“Commodity markets are increasingly pricing in a scenario where a significant portion of Russian supply is excluded from the market,” Morgan Stanley said in a note. “Prices are likely to remain highly volatile, until the real supply effect becomes more apparent and prices can begin to stabilize at a new equilibrium.”

While prices rose, a major one-day nickel spread was trading at its biggest discount since 2009 on the London Metal Exchange, while copper and zinc equivalent spreads also eased significantly. One possibility is that holders of Russian metals stored in LME depots have chosen to give up their holdings, according to two nickel dealers.

Liquidity deteriorated dramatically in the nickel market overnight as sellers rushed to the sidelines, leading to sharp price jumps between trades as short holders scrambled to buy back positions. In addition, bullish investors in China are piling up nickel on the Shanghai Futures Exchange, said Wang Yanqing, an analyst at China Futures Co.

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Citigroup Inc. analysts wrote. In a note before Monday’s unprecedented rally: “The nickel market is the tightest it has been since the super-commodity cycle of the 2000s.” They said prices will rise in the near term.

Nickel’s astonishing rally was just one part of a turbulent start to the week in the energy and commodities areas. Copper and aluminum both rose to all-time highs in Asian and London trade, as high oil prices and fears of supply shocks rocked raw material markets amid the Russian invasion of Ukraine. Palladium also rose sharply amid increased risks to shipments from one of the world’s largest producers of the metal.

“Already tight markets could see more shortages if Russian commodity exports are significantly affected,” Morgan Stanley said. “Against the backdrop of generally low inventories, demand destruction would become necessary under such a scenario.”

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Copper and aluminum reversed gains in US trading after German Chancellor Olaf Schulz on Monday poured cold water on the idea of ​​cutting off Russian oil and gas in the near term.

The German leader said supplies from Russia were of “essential importance” to the European economy, and heating, transport and electricity could not be secured otherwise. However, the Biden administration can act on its own. Schulz’ comments showed that US stock futures pared losses while crude oil gave up most of the gains from an earlier spectacular rally.

Nickel touched a high of $46,850 a ton on the London Metal Exchange. Copper fell after rising to an all-time high of $10,845 earlier, while aluminum fell after a 5.8% increase to a new record. Other major LME minerals were mixed, with higher zinc and lower tin. The spot price of palladium is up 14%.

Wang said that the bullish momentum for nickel will continue in the coming weeks before destroying demand becomes a risk. In China, investors are also watching for potential flows from Russia with European or North American markets avoiding some of these shipments.

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