Nickel prices have surged to the highest level in more than six months, underlining worsening trading conditions since market chaos broke out in March.
The benchmark nickel contract for delivery in three months surged briefly to hit the London Metal Exchange’s daily trading limit of 15 per cent, reaching almost $31,000 per tonne on Monday. That was followed by a 5 per cent rise on Tuesday after a nickel mine in New Caledonia, which supplies Tesla, cut its fourth-quarter production forecast.
Trading sources said the volatile price movements were a testament to the low liquidity that has haunted the market since the LME suspended and cancelled billions of dollars worth of nickel trades in March following an unprecedented price rise.
“The market is still very thin. What we’ve seen is the effects of low liquidity play out right in front of us,” said Geordie Wilkes, head of research at Sucden Financial, a metals brokerage.
Nickel, which is used to make stainless steel and the batteries used in electric cars, has suffered an extremely turbulent year. Fears of sanctions on Norilsk Nickel, a large Russian producer, coincided with a huge bet by the world’s largest stainless steel producer, Tsingshan, that prices would fall, causing prices to more than double in a matter of days in March.
Nickel prices have rallied almost 25 per cent in five days off the back of optimism over the Chinese economy reopening and Beijing supporting the property sector, as well as a weaker US dollar following better than expected inflation data.
But Nikhil Shah, head of nickel research at consultancy CRU, said the string of positive news “is no justification for the rally we’ve seen” and “we could see a big correction over the next few months”.
Volume on the LME three-month nickel contract since March has been 30 per cent of levels in the six months before the market chaos, according to Bloomberg data.
Prony Resources, the owner of the Goro nickel mine in New Caledonia, which is partly owned by commodity trading giant Trafigura, said in a statement that production had to be reduced in the final three months of the year because heavy rain caused a “limited release of salt-laden liquid” from its tailing dam.
Videos of a blast at a nickel pig iron plant in Indonesia were circulating on social media on Monday but the Chinese owner of the site said production had been running as normal since beginning at the end of last month.
One nickel trader said the primary driver behind nickel’s surge was a weaker dollar exacerbated by low liquidity on the nickel contract. “Any supply side issues are not material.”
Nickel producers are growing increasingly concerned about the detrimental impact of the volatility. Jeremy Martin, chief executive of Horizonte Minerals, a London-listed developer of nickel projects in Brazil, said stable pricing of $20,000 to $25,000 would be preferable.
“What is very challenging is these very significant spikes. Everybody then goes ‘we need to have an alternative, we need to substitute and nickel is not that stable input commodity that we thought it was for our battery technology’,” he said.
