Nickel's biggest supply squeeze in more than a decade is drawing attention from the London Metal Exchange, as plunging inventories mean buyers are forced to pay massive premiums for immediately available metal.
Cash contracts on the London Metal Exchange reached a $90-a-ton premium to those expiring a day later, the highest since 2010 and nearing levels seen in 2007 during a historic squeeze. The bourse has stepped up its monitoring of the nickel market in response, and may take further measures to ensure orderly trading if needed, a spokeswoman said by email.
The turmoil in nickel is the latest example of acute supply stress in global metals markets, and represents the third time inside 12 months that the exchange has stepped in to increase monitoring. Both copper and tin have seen wild price moves in recent months after exchange stocks shrank dramatically, sparked by surging demand and supply bottlenecks during the pandemic.
In the case of copper, the London Metal Exchange was forced to take rare steps to restore order, including placing limits on the nearest-term copper spreads and allowing holders of some short positions to avoid delivery.
The last time nickel inventories tracked by the exchange reached current critically low levels was in 2019, when the bourse launched a market-conduct inquiry after top stainless steelmaker Tsingshan Holding Group Co. sparked controversy by withdrawing large amounts of stocks. The premiums for spot contracts are even steeper now, suggesting the strain on buyers is more acute this time around.
Stockpiles have also fallen on the Shanghai Futures Exchange, leaving buyers exposed to a simultaneous squeeze in onshore and international markets and helping to keep prices near the highest since 2011.
Stronger demand for nickel in electric-vehicle batteries and fresh worries about supply from Indonesia have caught many in the market off guard.
"The Shanghai tightness has fed through to London now, with low stocks on both exchanges and no signs of deliveries yet," Marex analyst Alastair Munro said by email. "Essentially, traders and consumers have been caught short, with recent data pointing to a pick-up in EV sales."
Metals could find support after economists forecast that China's cut of two key policy interest rates has opened the door to more monetary easing actions ahead. The country's economy is being tested by outbreaks of the omicron virus strain, a decelerating property sector and sluggish consumer sentiment.