LME shuts nickel market over price-surge; MCX may follow suit

Tuesday\'s price surge came after state-owned China Construction Bank was granted more time to pay margin calls

Chennai: Following a dramatic 300 per cent surge in nickel prices since the Russian invasion of Ukraine, the London Metal Exchange on Tuesday suspended contract in the industrial metal. As the nickel prices in the Indian futures market are moving in tandem with the international rates, commodity experts expect a similar move from the Multi Commodity Exchange. Prices more than doubled on the MCX in the past two days.

Nickel, used in stainless steel and electric-vehicle batteries, surged 250 per cent in two days on the LME, moving above $100,000 a tonne on early Tuesday. Since February 24, nickel prices on the LME have moved up 301 per cent from $24,887 a tonne to $101,365.

The London Metal Exchange suspended trading in its nickel market after the unprecedented price spike left brokers struggling to pay margin calls. Tuesday's price surge came after state-owned China Construction Bank was granted more time to pay margin calls. However, the metal later cooled to some degree and was trading at $80,000 when trading was suspended.

After that China, which also has a large market of nickel, has asked its large financial firms to report the extent of their exposure to derivative contracts in nickel.

The market feared a supply squeeze as Russia is one of the world's biggest suppliers of nickel, accounting for about 6 per cent of the global supply. More importantly, Russia's MMC Norilsk Nickel PJSC, which operates mines in Siberia, supplies about 17 per cent of the world's so-called "Class 1" nickel, a high-purity form that's more suitable for batteries, according to Bloomberg.

The nickel market was exceptionally tight even before Russia's invasion of Ukraine, with strong demand from stainless steel producers and battery makers and supply concerns in Indonesia, the top producer.

As the nickel contracts in the Multi Commodity Exchange are also moving in tune with the international rates, commodity experts want the MCX also to suspend the contracts. Since February 24, nickel prices on the MCX have gone up 201 per cent from Rs 1,864 a kg to Rs 5,617. In the past two days, the prices have jumped 110 per cent.

"LME has mentioned clauses which support such an action when volatility in a commodity moves beyond the prescribed levels. However, MCX rules do not have such a clause. I have checked with the MCX on whether the exchange was planning any such move. However, I have not received any response from the exchange," said Ajay Kedia, MD, Kedia Commodities.

As the prices have been rising, MCX has been increasing the margins. Margins have risen sharply in the past few sessions. "It has become extremely difficult for investors and traders to pay the margins as they keep on increasing. Further, this will also expose banks and other funding agencies to high risk. China too is enquiring about the exposure of financial firms in the nickel market. Hence, we suggest that MCX should take some action in the face of unprecedented price rise," he said.

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