Chinese stainless steel giant Tsingshan Holding Group (THG) has for many years relied on short selling to reduce its future costs for nickel, a key component of stainless steel and a major ingredient in lithium-ion batteries. But rather than nickel prices falling as hoped, the price skyrocketed to over $100,000 per ton on March 8, one day before THG’s 200,000-ton short sell contract was due on March 9.
The price of nickel went up even before Russia invaded Ukraine, reflecting the increasing demand for electric vehicle batteries and stainless steel. The price soared after the war started, since Russia produces 23 percent of the world’s high-quality nickel and has been sanctioned finacially. The price rocketed as THG bought large amounts of nickel to reduce those short bets and its exposure to costly margin calls.
Some traders refer to this as the “Demon Nickel” incident. Within the futures market, the term “demon” refers to the difficulties associated with attempting to control the price of volatile futures.
The “Demon Nickel” incident unfolded rapidly on March 8 when the price per ton for nickel on the London Metal Exchange (LME) unexpectedly broke the average $60,000 to $70,000 mark and continued rising to over $100,000 per ton. That was an unprecedented short squeeze and THG’s staggering loss could be as high as $8 billion.