Spike in Nickel Prices after Sanctions on Russia

Vicious short squeeze sends nickel price soaring – Chinese metals tycoon to face potential steep losses, while electric vehicles may become more expensive. Sanctions imposed on Russia have created a significant dent in Russian assets, causing large-scale margin calls among the Russian elite.

Curbs on exports from the country have also led to commodity prices surging around the world, and the latest fluctuation we are seeing is that of nickel price. The LME benchmark contract on nickel price spiked 250% over the trading session and the metal briefly hit US$100,000 a tonne before pulling back closer to $80,000.

Nickel Price Estimates

To put things into perspective – nickel price has risen around US$11,000 a ton over the last five years, and this week alone, it jumped by as much as $72,000. This dizzying upsurge in nickel price has caused great unease in skittish retail traders, and one Chinese metals tycoon faces potential losses of up to billions of dollars.

Nickel Price Estimates

Xiang Guangda, the billionaire founder of China’s leading stainless steel producer Tsingshan Holding Group, had amassed a huge short position in the nickel market, betting that the nickel price would fall.

However, when the market moved the other way, he struggled to close his position. There have been no exact details of the size of his position, but it is speculated to be at least 100,000 tonnes of nickel, and Xiang is currently facing potential losses of billions of dollars depending on where nickel prices reopen.

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Nickel Price Target

Late Monday, on the 7th of March, the LME had decided to allow traders to defer delivery obligation on all its main contracts, including nickel. It was an unusual move and a historic first for the 145-year-old institution.

This deferral allowed one unit of China Construction Bank Corporation extra time to pay hundreds of millions of dollars in margin calls that were due that day.

Faced with the situation escalating, industry leaders have remarked that this nickel price surge is not a reflection of industry fundamentals and insisted on intervention from the LME trading system as nickel faces the grip of a massive short squeeze.

why is Nickel so Expensive Now?

A short squeeze is a sudden rapid increase in the price of tradable security on the market. For it to occur, it must have an excess of investors holding short positions in it, believing its price is currently overvalued and will drop.

When it instead surges unexpectedly, short-sellers scramble to cut their losses by exiting their positions, causing its price to accelerate even more. If nickel prices continue to increase, lack of raw material and logistic hiccups could increase costs of electric-vehicle batteries and chips in direct proportion.

This is because nickel is essential in powering electric car batteries, alongside lithium. The increase in nickel prices would cause a ripple effect amongst companies such as Tesla, and consumers will soon find themselves paying higher prices for new cars and battery repairs in old ones.

In Hong Kong, Tesla Inc. remains one of the most traded stocks in early 2022, and electric vehicles (EVs) in general have been dominating the streets since their introduction to the Asian market.

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The initiative to target net-zero emission by 2050 to combat climate change has also propelled vehicle sales, as the local government stepped up policy support by offering subsidies to install 110,000 EV charging facilities on private housing estates.

As of November 2021, Hong Kong had registered nearly 25,000 electric cars, accounting for 23% of new car registrations in the first 11 months of the year. Orwin Fung Ho-yin, the deputy director of the Environment Protection Department, also remarked a month later that the ratio of new EV sales would rise to 50% by 2025.

Inflationary pressures of EVs are still mounting as the development of nickel prices remain unclear. However, the LME did respond swiftly to the unsettling scene and industry voices, and it has since suspended nickel trading on Tuesday, the 8th of March, for at least a week.

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