LME Resumes Nickel Trading After Suspension Due to Volatility

Trading in nickel was suspended at 0815 GMT on March 8 after the price surged more than twofold, reaching over $100,000/mt in early trade. The LME three-month spot nickel hit a record high of $101,365/mt during early trade on March 8, after closing at $48,078/mt on March 7. At the time of the suspension, the price had fallen back to $80,000/mt.

The LME stated late on March 14 that the suspension had occurred against a backdrop of large short positions, primarily originating from the OTC market, along with geopolitical news and low metal stocks. The exchange worked with stakeholders to realign market conditions and set the criteria for resuming trading.

The LME noted that a significant liquidity user in the market had publicly disclosed support from a banking consortium, which could potentially ease concerns about further disorderly market conditions.

The exchange also completed its review of the proposed voluntary netting arrangement. However, due to limited potential uptake, it was concluded that it was not appropriate to proceed with these arrangements at this time.

Daily Price Limits

In response to market volatility, the LME introduced daily price limits for all base metals starting March 15, with the exception of nickel, for which the limits will apply starting on March 16.

While nickel has drawn significant attention due to its extreme price movements, the LME observed significant volatility across the base metals market in general. Geopolitical concerns and the risk of sudden price fluctuations in other metals led the exchange to implement daily price limits for all base metal outright contracts across all execution venues.

The daily price limits will be based on the previous business day's three-month contract closing price, with the upper and lower limits set at a 5% increase or decrease for all base metals, and a 10% limit for nickel. The limits will be based on the closing price from March 7 for the March 16 reopening of nickel trading.

Other Operational Measures

In addition to the daily price limits, the LME also introduced several other operational measures to manage the situation:

• Delivery of all nickel contracts entered into before March 16, due for delivery between March 16 and March 22, will be deferred until March 23.
• The accountability level for nickel will temporarily be revised from 6,000 lots to 3,000 lots, including over-the-counter positions.
• Members will be required to provide extra information and regular reports to the LME about aggregate on-exchange and OTC nickel positions.

The LME also acknowledged significant feedback regarding the low stock environment for LME deliverable-grade nickel, which has the potential to amplify situations similar to the current one. The exchange promised to fully evaluate these broader parameters, such as increasing position limits, enhancing transparency regarding position-holders, and considering a wider range of deliverable physical nickel grades.