Nickel Is the New Trendy Meme Token – How the Price of Nickel Went From $30K to $100K in Just Two Days
When short selling still wreaks havoc.
The London Metal Exchange was a mess on March 8, 2022. The price of nickel increased three and a half times in two days to reach the incredible price of $100,000 per ton:
This is an unprecedented move in the history of the 145-year-old London institution.
Extraordinary circumstances call for extraordinary measures, as the London Metal Exchange decided to suspend trading on Tuesday, March 8, and also to cancel a good number of trades made since the opening. nickel was still trading at $80K at the time of the trading halt.
The exceptional measure decided by the London Metal Exchange aimed to bring calm by breaking the vicious circle of forced buybacks by short-sellers. Some market operators had bet on a drop in the price of nickel to cover themselves or to speculate.
But with the war in Ukraine, prices rose so much that they were forced to bail out their positions via margin calls, or close them out in a hurry. To limit their losses, investors who have taken such short positions start to liquidate their short sale contracts in panic. To unwind these contracts, they must immediately buy the nickel they have committed to deliver.
Short sellers in an illiquid market
This process of forced liquidation, in turn, fuels the rise in nickel prices, forcing other players to buy in turn, which pushes prices up even further... The rise is all the greater because the market is illiquid as there are few sellers. Most of those who hold stocks wait for the price to continue to rise before selling.
When short sellers are caught short in this way, the markets call it a short squeeze. It is common for mining groups or financiers to hold short positions in a market, among other things, to protect themselves against a price drop. However, it seems that a small handful of traders have been speculating massively on the downside in recent months.
According to Bloomberg, one of them is Chinese entrepreneur Xiang Guangda, known as “Big Shot”, via his company Tsingshan, the world's largest producer of stainless steel. He is said to have made a downward bet to hedge against a growing supply of the metal, but also because he thought the rally would run out of steam. His potential losses are estimated at $2 billion.
Initially, it is his brokers who are under pressure. One of them, China Construction Bank, has been granted a delay by the London Metal Exchange to settle margin calls amounting to several hundred million dollars.
Fear of Russia's exclusion from the nickel market triggers a short squeeze
The escalation of the Ukrainian conflict and the prospect of direct sanctions on Russian raw materials have set the world on fire. Russia is the third-largest producer of nickel in the world, behind Indonesia and the Philippines. According to Rystad, Moscow holds 13% of the world's mining capacity and in 2020, Russian mining companies will have mined 283,000 tons of nickel.
Above all, Russia is the leading producer of so-called “battery-grade” nickel, for which demand is exploding with the rise of electric cars. The fundamentals argue in favor of a price appreciation, but in no way justify this frenzy, according to most market experts.
The price increase is exaggerated and seems to respond to a well-known FOMO effect in the world of cryptocurrencies. Moreover, the parabolic rise in the price of nickel in the last 48 hours reminded us of the evolution of Meme Tokens like Dogecoin or SHIBA INU in their heyday. Once the short squeeze is over, nickel prices should fall significantly. Especially since the Europeans, like the German Chancellor, do not seem ready to directly sanction metals and hydrocarbons from Russia.
There are certain prices that the West is not yet ready to pay to defend freedom and democracy in Ukraine. We will see if this changes in the days and weeks to come.