Europe Markets

Systems error triggers fresh chaos as LME suspends nickel trading once again

Key Points
  • The LME resumed nickel trading contracts at 8 a.m. London time after extreme price volatility prompted a rare market shut down last week.
  • A technical glitch shortly thereafter prompted the exchange to temporarily halt the market once again, before trading reopened at 2 p.m. London time.
  • It marks yet another embarrassing setback for the LME.
  • The 145-year-old exchange is the global center for industrial metals trading and the main venue for setting prices.
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LME CEO on nickel trading shutdown: 'We cannot be in a position where this happens again'

LONDON — The London Metal Exchange said Wednesday it had been forced to halt the nickel market once again after a "systems error" allowed a small number of trades to go through below its newly imposed daily price limit.

The LME said trades executed below the lower daily price limit would be canceled.

The temporary suspension of nickel trades marked yet another embarrassing setback for the LME. The 145-year-old exchange is the global center for industrial metals trading and the main venue for setting prices.

The LME resumed nickel trading contracts at 8 a.m. London time after extreme price volatility prompted a rare market shut down last week. A technical glitch shortly thereafter prompted the exchange to temporarily halt the market once again, before trading reopened at 2 p.m. London time.

Nickel prices more than doubled in a matter of hours on March 8, climbing above $100,000 a metric ton as one of the world's top producers, China's Tsingshan Holding Group, bought large amounts to reduce its short bets on the metal.

The position exacerbated a price rally at a time when metals were already spiraling upward on Russia's intensifying conflict in Ukraine.

The LME on Wednesday installed trading limits at 5% above or below the last closing price before last week's suspension. It previously said any bids above the higher or lower limit offers would be rejected.

"We are absolutely mindful of the impact that this has had on so many people and we need to make sure that it doesn't happen again," Matthew Chamberlain, CEO of the LME, told CNBC's "Squawk Box Europe" on Wednesday. His comments came shortly before the nickel market reopened.

Chamberlain said the LME had "deliberately prioritized stability" by setting a relatively narrow range of daily trading limits, but these could be soon widened if the exchange observed a "more orderly market."

Looking ahead, the LME CEO said "greater visibility" on the over-the-counter market would be required. Chamberlain said this was in addition to other reforms, such as price bands. "We cannot be in a position where this happens again."

'Sick to the stomach'

Commodity prices have jumped on supply fears related to Russia's onslaught of Ukraine, with the ongoing war and an array of Western sanctions raising disruption fears.

Alongside energy, Russia is a key producer and exporter of metals and grains. Indeed, Russia is the world's third-largest producer of nickel — a key ingredient in stainless steel and a major component in lithium-ion batteries.

"Undoubtedly, it is a stressful time with prices where they are, but we are beginning, I think, to see some stability and if we all act responsibly, as I believe our market is now doing as we reopen nickel in an orderly manner, then I think the stability of the system should not be impacted," Chamberlain said.

Traders, brokers and clerks on the trading floor of the open outcry pit at the London Metal Exchange in London, U.K., on Monday, Feb. 28, 2022.
Chris J. Ratcliffe | Bloomberg | Getty Images

Chinese metals group Tsingshan said Monday it had reached a so-called standstill agreement with banks to resolve a bet on nickel that plunged markets into turmoil last week. The nickel giant faces billions of dollars in losses from its short position.

Short selling is a bearish investing practice in which an investor bets the price of an asset will fall. A short squeeze occurs when a large number of investors are shorting an asset, the price rises sharply and the investors exit their positions at the same time, losing money. Because exiting a short position involves buy orders, the short squeeze pushes prices even higher.

When asked Tuesday what he expected to see as the LME reopened the nickel market, Saxo Bank's Ole Hansen told CNBC: "It's going to be horrible."

"A lot of people are just really sick to the stomach of the way the market behaved last week but hopefully this will be a wake-up call for the LME because they are living in the past," Hansen said.

"Hopefully it will bring some long-overdue reforms. You should not have a pit with 20 people shouting and screaming — that is just a relic of the past. Forget about that," he continued.

"We need stabilizing contracts where liquidity can be concentrated and by that, you also reduce risks of these kinds of spikes because you attract more market players into the market thereby removing the risk of these very, very sharp squeezes."