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The LME Is Facing $500 Million In Lawsuits Over Nickel Short Squeeze

  • The LME’s nickel crisis is back in the headlines.
  • Two trading firms are suing the exchange for $500 million over its decision to cancel trades following the March nickel squeeze.
  • Some feel a departure of nickel traders from the LME was likely following the chaos and the exchange’s subsequent controversial approach to it.

Nickel prices appeared to hit a bottom in mid-May, but the trend remains down. Moreover, recent price action showed few signs of any bullish structures on a weekly scale. All in all, the Stainless Monthly Metals Index (MMI) dropped 9.4% from May to June.

LME Faces Nearly $500 Million in Lawsuits

The nickel crisis returned to the headlines earlier this week. Two financial groups sued the LME over its decision to cancel trades following the March 8 nickel squeeze. Trading firm Jane Street Group LLC and hedge-fund manager Elliot Management Corp. filed a respective $15.3 and $456 million dollar lawsuits against the exchange over its handling of the crisis.

Will Western Sanctions Actually Impact Putin’s Political Prowess?

The owner of the LME, Hong Kong Exchanges & Clearing Ltd. acknowledged the suits in a statement. It read, “the LME management is of the view that the claim is without merit and the LME will contest it vigorously.” Jane Street, however, characterized the LME’s decision as “illegal” and “arbitrary.” They went on to say that it “severely undermines the integrity of the markets and sets a dangerous precedent that calls future contracts into question.”

The lawsuits follow an ongoing review of the LME’s actions by the LME’s primary regulators, the Financial Conduct Authority and the Bank of England. After this was announced in early April, these reviews are compounded by the LME’s own independent probe.

Nickel Prices: A Tale of Two Exchanges

While the lawsuits once again brought attention to the nickel price crisis, the actual fallout remains ongoing. Some feel a departure of nickel traders from the LME was likely following the chaos and the exchange’s subsequent controversial approach to it. However, the ramifications of the crisis remain apparent across the globe.

Both the LME and SHFE continue to grapple with low liquidity. Trading volumes on the LME plummeted when nickel trading resumed in March. Meanwhile, open interest continues to show steady declines. Though the SHFE did not face the same early March suspension, it saw a sharp decline in trading volumes during that week as open interest collapsed. Both volumes and open interest remain constrained to this day.

While the retreat from the nickel market was a global effort, other metals remained largely unaffected.

Related: Will Western Sanctions Actually Impact Putin’s Political Prowess?

Nornickel Projects Slowed Demand Growth

According to the world’s largest high-grade nickel producer, nickel demand will remain in growth but slow from +17% in 2021 to +11% in 2022. Nornickel also expects global inflation and macroeconomic uncertainty to account for much of the slowdown. The producer’s previous forecasts for a rough 40,000 ton surplus (which is expected to widen to 100,000 tons in 2023) of low-grade nickel remains unchanged.

Nickel, alongside other commodities, faced numerous price pressures throughout the past year. COVID-related lockdowns and restrictions continue to disrupt the supply chain. Combined with tight nickel inventories, this fostered considerable bullish sentiment in 2021. The ongoing Russian invasion of Ukraine, which preceded nickel’s historic short squeeze, also remains a point of concern. This is especially relevant as global inflationary pressures threaten the demand outlook.

Nornickel’s forecast hinges on two factors. First, there’s the extent of China’s economic recovery as it gradually emerges from lockdowns. Second, it’s important to consider the impact of future expected interest rate hikes from the Fed. Indeed, these two forces are likely to influence price directions for commodities as a whole throughout the coming months.

By AG Metal Miner

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