- Nickel briefly hit $100,000 Tuesday, as prices surged thanks to worries about the effect of sanctions on Russia.
- The London Metal Exchange suspended trading in the nickel market for the remainder of the day.
- Record price gains in the metal, used in stainless steel and EV batteries, are forcing short-sellers to cover their positions.
Nickel prices briefly topped $100,000 a ton Tuesday for the first time ever as sanctions against Russia triggered a historic short squeeze in the market on the London Metal Exchange, which suspended trading.
Prices rose as much as 111% to an intraday high of $101,365 a ton on the LME, after closing 66% higher a day earlier. The metal has gained 320% since the beginning of Russia's war in Ukraine.
The steep rise in nickel to an 11-year high last week led to what's known as a "short squeeze," according to traders. This happens when traders who have borrowed an asset to sell at a discount, expecting the price to fall, are forced by a jump in price to buy the asset at a loss.
"High margin calls are presumably forcing investors to cover their short positions at any price, which appears to be catapulting the nickel price ever higher," Commerzbank's Daniel Briesemann said.
China Construction Bank, one of the country's biggest lenders, was given more time to pay hundreds of millions of dollars in metal margin calls that it missed Monday, Bloomberg reported.
The LME said early Tuesday that it would suspend trading from 8:15 a.m. local time for the rest of the day, given the effect of the evolving Russia-Ukraine situation.
"It is evident that this has affected the nickel market in particular, and given price moves in Asian hours this morning, the LME has taken this decision on orderly market grounds," it said.
Nickel closed 21% lower at $80,000 a ton as of 3:15 a.m. ET.
Russia is the third-largest nickel producer, according to the US Geological Survey, and it is the source of 17% of top-grade supply. About two-thirds of global nickel production goes into stainless steel, but the metal is key in lithium-ion batteries.
The metal is facing supply disruptions, mainly because of Western sanctions imposed against Russia over its aggression in Ukraine.
"Russia is one of the leading global exporters of nickel, and with the potential of incoming sanctions directed towards Western countries, the market could see a significant supply shock in the near term, which could lead to even further price increases until the situation is stabilized," Walid Koudmani, chief market analyst at financial brokerage XTB, said.
Nickel's latest surge is dizzying. While its price has risen by around $11,000 in the last five years, its jump in this week alone has been by as much as $72,000.
The metal's price was already rising even before Russia's invasion of Ukraine, thanks to lingering supply-chain crunches resulting from the COVID-19 pandemic.
Further disruptions to supply from Russia are making already tight supply constraints worse, as are cutbacks in production by European smelters in the face of high energy prices, according to analysts.
If prices continue to remain elevated, this could bump up costs for electric-vehicle batteries that were already under pressure from rising raw material prices.
Deutsche Bank analysts highlighted the knock-on effect on prices for all commodities where Russia is a key exporter, in particular for central banks trying to balance taming inflation with keeping economic growth going.
"Overall it's fair to say that if commodities stay at these elevated levels, it will make life even more difficult for central banks, who will have to try and thread the needle between preventing inflation becoming entrenched without aggravating the slowdown with higher interest rates," they said.