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The London Metal Exchange (LME) suspended nickel trading on Tuesday, after the price of the base metal skyrocketed to a record amid escalating uncertainty around major supplier Russia, and after an intense short squeeze.
Nickel rose to a record US$101,365 per tonne, more than doubling in a matter of hours. The previous all-time high was US$51,800 per tonne reached in 2007, at the tail end of a near-decade long economic boom.
Bart Melek, head of commodity strategy at TD Securities Inc., wrote in a note to clients that the “epic” rally on the LME was ignited by fears that global supplies will tighten, but then took on “a life of its own,” as traders failed to make margin calls.
When a nickel futures contract is sold short, traders borrow the securities from a brokerage, and then immediately sell in the hope the price will fall. If the trade works out, the investor buys back at the lower price, returns the security to the original investor, and books a profit.
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