Nickel Price Hike

 In March 2022, Nickel prices experienced a sudden hike of more than 200%. The reason for this was thought to be the Russian invasion in Ukraine due to which various sanctions were imposed on Russia and many countries boycotted imports from Russia. But the nickel price hike was also related to some activities of the London Metal Exchange (LME).

On March 7, 2022, LME suspended its trading after nickel prices hiked by 250%. Along with suspending trading, it decided to cancel $3.9 billion in trades. Effectively, it rewound the market to the closing price on March 7 of $48,078 per metric ton, down from a high of over $100,000 in the early hours of March 8. The chief executive officer of the LME defended the decision as necessary to protect market stability, saying the prices were “becoming disconnected” from “physical reality.” 

Causes: The seeds of the crisis had been planted by a Chinese Tycoon, Xiang Guanda and his closely-held enterprise Tsingshan Holding Group Co., a dominant force in the world’s nickel and stainless steel production. Tsingshan had been shorting nickel -- betting that prices would fall -- because Xiang expected that a rapid production increase in his Indonesian factories would weigh on global prices. Then came the invasion of Ukraine by Russia, a major nickel producer, which was followed by a raft of economic sanctions against Moscow. 

Effects: Russian sanctions are a heavy toll on the entire world. A few people can rule the way the natural resources are used.

What this means for you: The commodity market is being influenced by a very few rulers above everyone such as OPEC for oil and LME for nickel. There are no gameplayers in this market. So whatever happens to these natural resources, it is decided by these people. Hence to have a better idea about where are resources are being used, we need to pay a closer attention to these people.

Support Links:

Bloomberg article

LME problems

Econmomic Times article

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