Materials

LME to reopen but with strings attached

Wed 16 Mar 22, 10:43am (AEST)
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Key Points

  • Tsingshan has vowed to reduce its short position in a “fair and orderly manner"
  • All metals besides nickel are now subject to a 15% limit in either direction
  • Nickel will be subject to a limit of at least 5% in either direction

Nickel trading is set to resume on the London Metal Exchange (LME) 8am London time on March 16, more than a week after being suspended following an historic short squeeze.

To prevent wild swings in future the LME has outlined new limits on trading, including daily price limits across metals.

The exchange is also reviewing trading activity and market conditions in nickel during last week’s mayhem.

As well as halting trading in the fallout of the price spike, the LME also proceeded to cancel around $US3.9bn of transactions that had taken place when prices moved from $US50,000 to more than $US100,000 a tonne.

Prices rocket by as much as 250% within a single day after Chinese firm Tsingshan Holding Group struggled to pay margin calls on its large nickel short position.

Could history repeat?

While Tsingshan is also negotiating a loan facility, the company’s banks, including JPMorgan Chase & Co and Standard Chartered, “agree not to close out positions against Tsingshan or make further margin calls”.

While Tsingshan has vowed to reduce its short position in a “fair and orderly manner" as abnormal market conditions subside, it remains to be seen whether they can do so without adding further market disruption.

Daily limits not just on nickel

In an effort to avoid the sharp price swings that triggered vast margin calls last week, the LME is setting limits on the daily price move in nickel, plus the other metals that trade on the exchange.

All metals besides nickel are now subject to a 15% limit in either direction. But when the LME reopens today, nickel will be subject to a limit of at least 5% in either direction, with the final figure to be determined.

In an attempt to heighten its surveillance of the nickel market, the LME now requires all brokers to disclose all their clients’ positions in nickel that were larger than 600t and may also require a ‘please explain’ for their positions.

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Runaway nickel: Could it happen again?

Written By

Mark Story

Editor

Mark is an investigative financial journalist and editor who started his career working for Marathon Oil in London. He has a degree in politics/economics and a diploma in journalism. Mark has worked on 70-plus newspapers and financial publications across Australia, NZ, the US, and Asia including: The Australian Financial Review, Money Magazine, Australian Property Investor and Finance Asia. Mark is passionate about improving the financial literacy of all Australians through the highest quality content. Email Mark at [email protected].

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