Why nickel is smashing records after the Ukraine war

Nickel, which is used to make stainless steel and batteries for electric vehicles, took an unprecedented twist Tuesday, as London suspended trade after prices skyrocketed due to the Ukraine crisis.

Moscow’s invasion of neighbouring Ukraine sent the market surging beyond $100,000 per tonne as Russian supply concerns sparked sharp volatility.

– Russia’s role –

The Ukraine conflict rocked already-tight global supplies because Russia is a key producing nation.

The market then went into orbit with traders fearful of possible Western sanctions on its mining sector.

“Russia is the third largest supplier of nickel accounting for nearly 13 percent of the total global nickel mining capacity in 2021,” said Rystad analysts Marina Bozkurt and Susan Zou.

Russia accounts for 11.3 percent of the global nickel output.

This week’s nickel gains easily outpaced those of Russia’s other key commodities, which include aluminium, gas and crude oil.

– The market backdrop –

Prior to the Ukraine war, nickel won strong support over the last two years as the coronavirus pandemic heavily disrupted the supply of commodities.

Demand is now strengthening as the world economy recovers from the fallout.

The metal is used in electric batteries to help in the transition away from fossil fuels and toward cleaner green energy.

Prices of nickel had already soared by 30 percent in 2019, by 20 percent in 2020 and by another 25 percent in 2021.

– The price spiral –

Prices were catapulted higher Tuesday by a so-called short squeeze, commentators say.

This occurs when investors bet on falling prices but are then forced to close out their positions and purchase at a far higher price, sparking an exceptionally volatile spike.

“Some market participants who had been betting on falling prices were clearly surprised and wrong-footed by the price upswing and momentum since Russia’s invasion of Ukraine,” said Commerzbank analyst Daniel Briesemann.

The metal had already soared past its 2007 peak on Monday to reach $54,880 per tonne.

Nickel then skyrocketed on Tuesday to a record pinnacle of $101,365.

Prices settled back to $80,000, up 66.4 percent from Monday, before the London Metal Exchange called a halt.

– What next? –

The LME said in a statement that it has decided to suspend trading for at least the rest of Tuesday.

Market watchers argue that such record price levels do not reflect the state of demand and supply.

“Due to the tremendous price hikes, suppliers have stopped making offers, waiting for clarity in the market since current nickel prices cannot be justified purely on market fundamentals,” added Rystad analysts Bozkurt and Zou.

Nevertheless, prices are expected to continue to win support from the Ukraine war.

That will continue to ramp up the cost of electric vehicle batteries and could slow the energy transition, according to analysts.