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Tuesday, May 24, 2022

Nickel market open but frozen; lowers are expected

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(Bloomberg) — The nickel market officially reopened Wednesday, but the reality is that it remains frozen.

Buyers have stood on the sidelines, watching prices reel from daily limits introduced this week by the London Metal Exchange. Electronic trading failed again on Friday after a brief flurry of trading when the market opened at 8 am, with a large number of limit sell orders but no offers.

Several traders said they expect the market to thaw and start trading around $30,000 a tonne, a level more in line with current prices on the Shanghai Futures Exchange, which has remained open during the LME suspension. .

It is equal to 19% below the price at which nickel for delivery in three months was trading on the LME on Friday, after falling by the maximum allowed for the third day in a row in another troubled opening. The price is now 64% below the record price reached on March 8 amid an unprecedented short squeeze in trades that were subsequently canceled by the LME.

Some believe that the price will continue to fall. While almost no contracts have been traded since the LME reopened the market on Wednesday, the exchange’s order book on Friday morning showed more than 10,000 sell orders, equivalent to 60,000 tonnes of nickel, at the US limit price. $36,915.

“With a whopping 60,000 tonnes of sell orders struggling to get out with no one taking them, we don’t see the LME getting a bid down to at least $25,000 or less,” said Anant Jatia, chief investment officer at Greenland Investment Management, a systematic commodity fund with more than $1 billion in assets.

On Thursday, April put options — which give the buyer the right to sell futures at a predetermined price — traded at $23,000 a tonne.

In theory, traders can be benchmarked on the LME to arbitrage between Chinese and international markets, so LME values ​​are pushed back far enough below Shanghai.

However, that implies further significant declines. Fournes, nickel for April delivery in Shanghai, was quoted at around US$34,500 a tonne. Excluding the 13% value-added tax levied on the metal in China, that translates to about US$30,500 in LME-equivalent terms. And contracts for later delivery were trading even lower, with June futures below $30,000 on the same basis.

To be sure, the big short position that threw the market into chaos last week still hangs over him. Xiang Guangda, the Chinese tycoon who controls Tsingshan Holding Group Co., secured a stay with his banks to avoid tighter margins.

But at some point, traders say, it will have to cover its position by buying back contracts on the LME, or buying deliverable metal and shipping it to LME warehouses.

original note:

Nickel market open but frozen as traders expect further declines

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