Behind the sharp price swings is the trading environment which has continued to deteriorate since the epic short squeeze in March. Since liquidity is low, any news and a weaker dollar will amplify nickel price fluctuations. LME steps up monitoring of nickel transactions, boosting initial margins by 28%.
In just three days this week, nickel futures have become the center of attention due to exceptionally large fluctuations. The world’s largest metal exchange, the London Metal Exchange (LME), is stepping up monitoring efforts to prevent a repeat of the “demon nickel” crisis more than eight months ago.
On Monday, after the “Oolong Incident” of the explosion at the Indonesian factory of Zhongwei Co., Ltd.,Lunni jumped 15% in intraday trading and hit his daily limitAfter that, the increase narrowed to 3.4% and finally closed above 7%. The Pacific island nickel mine of New Caledonia, which supplies Tesla, cut its projected nickel production by a quarter on Tuesday. Dayron Nickel closed up nearly 5 percent to close above $30,000 for the first time in six months, closing for the sixth consecutive day and is up nearly 25% in five trading days.
Lunni fell more than 10% in intraday trading on Wednesday, dropping to US$26,760/ton to a new daily low, an intraday drop of 12%, the biggest intraday drop since the big short squeeze erupted in March this year. year.
Coincidentally, the spike in nickel prices in the first two days of this week has already reminded peopleMarch’s “Epic Squeeze”.. Lunni once soared nearly 250% in just two days from March 7-8, and the intraday price soared to a record high of US$101.365/ton. The short-squeeze market continued to force the LME to urgently “unplug the network cable”: it announced the suspension of all nickel contract transactions and canceled transactions at 0:00 and after 8, now of the United Kingdom, and did not resume trading until 16 March
Media commented that the nickel price increase highlighted that the trading environment for nickel has continued to deteriorate since March.
Trade sources believe the recent volatility in nickel prices is evidence that the nickel market has been plagued by illiquidity since the LME suspended nickel trading for a period of time in March and canceled billions of dollars in nickel exchanges.
The market remains very thin, said Geordie Wilkes, director of research at metals brokerage Sucden Financial. What we are seeing is the effects of tight liquidity playing out right in front of us.
In the past six months, Lunni’s trading volume has decreased by a third and the low liquidity environment has amplified the fluctuations
News from Wall StreetAs mentioned above, extremely tight supply and demand fundamentals met “sanctioning rumours”, which intensified short covering and created a historic short squeeze in March. The market believes that Volkswagen, Glencore and some market participants with significant long positions in nickel, such as hedge funds,Together, nickel prices have skyrocketedIt will push Tsingshan Holdings, the world’s largest nickel producer, which has accumulated a large number of short nickel orders for hedging, into an impasse.
Following Lunni’s epic short squeeze, it was revealed in April that Tsingshan’s partner JPMorgan Chase was considering deals with some commodity clients.the media thinkAs one of the largest participants in the global commodity market and the largest player in the global metals market, JPMorgan Chase’s move could cause it to scale back its commodity trading activities and funds could further flow out of the Lunni market.
Before this week’s surge, trading volume in the Lunni three-month futures contract had declined 30% in the six months since March, according to data from Bloomberg. This also reflects the fact that enthusiasm for market trading has declined significantly since the big short squeeze.
Unlike in March, Lunni’s sharp rally this week has not yet sparked a major battle between longs and shorts. As a raw material for the production of stainless steel and electric vehicle batteries, Lunni’s recent surge is inseparable from China’s epidemic prevention trends and favorable political news for the real estate market. The weakening of the US dollar is also part of the driving force.
But Nikhil Shah, head of nickel research at consultancy CRU, believes the streak of good news doesn’t justify the recent rise, with a sharp correction likely in the coming months.
Some nickel traders believe that the main driver of the nickel rally is the US dollar, because the impact of a weaker US dollar will be magnified in an environment of low liquidity in nickel futures. “Any supply-side issue is irrelevant.”
LME looks to a repeat of the crisis
Although the “Demon Nickel” incident ended with Tsingshan drastically reducing its exposure and its partner JPMorgan Chase admitting a $120 million loss and exit, this unprecedented short-squeeze market has already made suffer the LME centenary.the biggest crisis of the last decadesand in early April it wasControlled by UK Regulatory Authoritiesuntil June, the consequences were still unresolved, LME was listed by the well-known Wall Street “vultures”,Hedge fund Elliott sues for illegal short squeeze management。
The recent fluctuations in nickel prices have made the market more concerned about the sharp drop in liquidity in the market after the short squeeze. March lessons are vivid. The LME recently stepped up its scrutiny of nickel trading amid a recent sharp increase in volatility.
An LME spokesman said Wednesday that monitoring of the exchange has been stepped up to ensure market participants are trading properly. The LME also informed that after the market close on Friday, the initial margin for nickel trading will be increased to $6,100/ton, an increase of 28% from the current level.
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