While the world focuses on oil prices, a little paid attention to commodity was a big story last week that mostly went unnoticed. The price of Nickel skyrocketed 250%, which caused the LME exchange to suspend trading and put a big Chinese bank in a huge hole.
Not surprisingly, Russia produces a significant quantity of nickel, 17% of the world’s supply. Nickel is used in combination with chromium to make stainless steel used in appliances, silverware, and machinery. But, sadly, for those looking to switch away from high gas prices, it is also used to produce electric vehicle batteries. In fact, this spike caused the price of these vehicles to increase by over $1,000 on this news for the battery alone. But the biggest loser in the short term appears to be Tsingshan Holding Group, one of the world’s largest producers and their financiers.
One would think that a nickel producer would be unlikely to suffer a significant loss from an unprecedented spike in the metal. After all, they should have a lot of it. Like many producers, they often hedge their long nickel holdings with short positions to lock in prices. In this case, they suffered a reported $8 billion trading loss on the spike. If they can prove that they have sufficient supply to offset the position, they should be in good shape, but in the meantime, big players like JP Morgan are in talks to secure a lifeline.
With trading now suspended since March 8th, the LME is trying to put procedures in place to prevent a meltdown like this from occurring again as they worry that many of their traders would not be able to meet the margin calls generated. Rumors abound that some trades were canceled to help some of their biggest customers to the detriment of bullish investors. As we sit on March 14th, 2022, we await the potential re-opening and see what new fireworks this week has to offer.
We will know soon enough who the big winners this month have been on record volatility. It looks like nickel producers might ultimately be one group that benefits but perhaps not yet. It has been a long two and half weeks in an already volatile year. We’ll see what this week brings.
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