Nickel Market Implosion Threatens London Metal Exchange

When a trade jumps by 250% over the course of days, investors typically pop bottles of champagne. Between Friday, March 4 and Tuesday March 8, nickel futures did just that — soaring on the London Metals Exchange (LME) from about $29,000 to $100,000 per ton.

Photo Insert: A nickel ore mine

But the champagne remains corked, investors are threatening to sue and the LME is hemorrhaging business. So how did it happen? Nicole Goodkind asked for CNN Business.

The tale that ensues involves billions of dollars, Russia, a Chinese tycoon known as "Big Shot," daytime drinking, and a metal exchange stuck between two large rocks without a chisel. For the majority of the last decade, nickel prices were boring.

On the LME, the premier trading and price-formation venue for industrial metals, nickel traded between $10,000 and $20,000 per metric ton and moved about $100 each day. Then in early March a short squeeze of epic proportions, prodded by Russia's invasion of Ukraine, awoke the sleeping giant.

One Chinese metals producer, Tsingshan Holding Group Co., sat at the center of the storm. The group had wagered a massive bet that the price of nickel would fall. At its peak, Tsingshan's short position was equivalent to about an eighth of all of the outstanding contracts in the market: If prices had stood at $100,000 the company would have owed the LME $15 billion, according to the Wall Street Journal.

LME executives scrambled to respond, ultimately throwing a lifeline to the brokers representing Tsingshan and other producers. In an unprecedented move, they halted trading and retroactively canceled all 9,000 trades that occurred on Tuesday, worth about $4 billion in total.

Over the past century-and-a-half, the LME has successfully trudged its way through world wars, meltdowns, and defaults. But nickel, the metal used in stainless steel and the lithium-ion battery cells in most electric vehicles, might be what finally brings the world's largest market for base metals contracts to its knees.

"The world's pricing mechanism for nickel is failing," said Daniel Ghali, the director of commodities strategy at TD Securities. "The question is, will it continue to fail?" Others weren't as diplomatic.

"The LME is now very likely going to die a slow self-inflicted death through the loss of confidence in it and its products," tweeted Mark Thompson, executive vice-chairman at Tungsten West, a mining development company.

WEEKLY FEATURE : MVP Group Keeps Lights On During Pandemic