European steelmakers’ association Eurofer called on the London Metal Exchange (LME) and the Financial Conduct Authority (FCA) on Wednesday to resolve artificial fluctuations in nickel prices and ensure they do not reoccur.
“In the last days, and since markets opened on 7 March in particular, we have seen an unprecedented surge in nickel prices that cannot be explained by supply and demand, nor by the sanctions recently imposed on Russia,” said Eurofer director general Axel Eggert.
Previously, in summer 2019, there was a similar situation of possible market manipulation by a specific player, Eurofer points out. “It is of utmost importance to solve this issue once for all so we do not see this happening a third time,” warns Eggert.
Following further unprecedented overnight increases in the three-month nickel price, the LME suspended nickel trading on Tuesday (see Kallanish passim). Nickel prices reached $101,365/tonne during night trading into Tuesday.
The LME concluded that the significant price moves during early hours trading activity on Tuesday morning “had created a systemic risk to the market, including in relation to margin calls, which if LME had not acted would have closed at levels far in excess of those ever experienced in the LME market”, it says. “The LME and LME Clear had serious concerns about the ability of market participants to meet their resulting margin calls, raising the significant risk of multiple defaults.”
On Thursday, LME said the two criteria needed for trading to resume were yet to be met. These are operational procedures to effect a safe re-opening, and analysis of the possibility of netting-off long and short positions prior to re-opening.
The LME however said it was doing everything it can to reopen the market as safely and swiftly as possible. This includes working on price bands, both for nickel and for all other physically-deliverable contracts. “In relation to netting off long and short positions, the initial responses indicated limited potential uptake, particularly from those with short positions, and considerable differences in view on the appropriate price,” LME said.
Eurofer requested the LME to keep the market closed until stability and normal price levels are restored. It has asked for an investigation of the trading practices by some market players to determine whether they may constitute market abuse or the creation of a disorderly market, or another prohibited practice.
Adam Smith Germany