LONDON: Nickel prices on the London Metal Exchange (LME) jumped more than 6% on Tuesday to their highest in more than three weeks on expectations that a large short position maturing in January would have to be bought back, metal traders said.
Declining volumes and liquidity, together with low stocks, has led to high LME nickel prices this year, pushing up costs for industrial users already grappling with surging inflation.
Used mainly to make stainless steel, nickel is now also a key material for electric vehicle batteries.
Three-month nickel hit $31,975 a tonne, its highest since Dec. 8, before falling back to $30,970 by 1703 GMT.
LME data gathered daily and published with a one-day lag shows one company holds 20-29% of open interest - the number of outstanding contracts due to mature or be rolled over in January “There is a potential event brewing once more in the nickel market as the futures open position in January is around 13,000 lots (78,000 tonnes) with one short holding 30% of the position,” Kingdom Futures Chief Executive Malcolm Freeman said in a recent note.
Freeman w.as referring to the doubling of nickel prices in March to a record above $100,000 a tonne in a disorderly market, prompting the LME to suspend nickel trading for more than a week.
The exchange also annulled all nickel transactions on March 8, for which it is being sued, and suspended nickel trading during Asian hours.
“The LME recognises market demand to reopen LME Nickel for trading in Asian hours,” the exchange said in response to a request for comment.
“We are working on this as a priority, not least since this would revitalise the arbitrage opportunities and help liquidity to pick up. We hope to announce a return to Asian hours trading very soon.” Arbitrage opportunities refers to trading that seeks to benefit from price anomalies between the nickel contracts traded on the LME and on the Shanghai Futures Exchange.
Many investors, traders, consumers and producers have abandoned LME nickel in the aftermath of the chaos in March.
Traders said the large short position could be a company selling nickel this year and buying it back next year to get the metal off its balance sheet.
“The problem is there isn’t any liquidity, (which is) why we are seeing these (nickel price) spikes,” one trader said.
The nickel price also spiked in December and November.
Average daily nickel volumes have crashed since March. They were down 54% year on year in October at 196,868 tonnes, having registered year-on-year losses of 40%, 51% and 42% in September, August and July respectively.