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Business News/ Markets / Commodities/  Key things to know about Nickel that is seeing massive price rally
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Key things to know about Nickel that is seeing massive price rally

Nickel prices more than doubled on Tuesday, while aluminium retreated from record highs

Nickel traded on the London Metal Exchange is so-called Class 1 nickel, which must be at least 99.8% pure (Photo: Reuters)Premium
Nickel traded on the London Metal Exchange is so-called Class 1 nickel, which must be at least 99.8% pure (Photo: Reuters)

Amid unprecedented spike in Nickel prices, the London Metal Exchange (LME) has halted trading in the Nickel as spike left brokers struggling to pay margin calls against unprofitable short positions, in a massive squeeze that has embroiled the largest nickel producer as well as a major Chinese bank.

Nickel prices more than doubled on Tuesday, while aluminium retreated from record highs. LME three-month nickel was up 66% at $80,000 a tonne when trading was stopped, having earlier been driven to a record $101,365 as some market participants were forced to cover short positions as prices rallied on worries over supply delays and logistics headaches resulting from Russia's invasion of Ukraine.

Key things to know about Nickel

There are two types of nickel out there.

Nickel traded on the London Metal Exchange is so-called Class 1 nickel, which must be at least 99.8% pure. But about half of the world’s nickel is less refined Class 2 metal, most of it in the form of products such as ferronickel and nickel pig iron which can be cheaply converted into stainless steel at Chinese smelters.

Those two products in turn tend to be produced by quite different ores. Nickel sulfide deposits are ideal for processing into high-purity products like Class 1 nickel, but they’re relatively scarce and confined to a handful of locations in temperate countries. The boom market in recent years has been in Class 2 nickel, which is mostly produced from nickel laterite, a lower-grade ore that’s easily strip-mined from weathered ground in Southeast Asia and other parts of the tropics.

Russia accounts for only about 9% of nickel supply, but it has closer to a third of the world’s nickel sulfide ore. That gives the status of its exports an outsize impact on the price of the Class 1 metal traded on the LME. This grade is also currently most suitable for producing nickel sulfate, a chemical that will have growing importance in the coming years because of its use in electric vehicle batteries.

Nickel is the most volatile metal.

Many metals are produced by relatively standardized methods. Almost all the world’s aluminum has been made via the Hall-Heroult smelting process since the 19th century. That makes prices relatively predictable, because there’s only one technology to think about. Nickel is different, with an array of different methods and end-use sectors that interact in often unpredictable ways. Lurching swings in price are fundamental to the nickel market, with 90-day volatility over the past 10 years markedly higher than for other LME-traded metals.

Inventories are low, but not desperately so.

The bulk of the world’s metal trading takes place away from exchanges like the LME in direct contract relationships between a relatively small number of producers and consumers. The metal that finds its way to the exchanges is usually surplus product, which the same producers and consumers buy and sell to hedge the prices they’re receiving in the physical market, and come up with a reference price against which they can benchmark those trades.

(With inputs from Bloomberg)

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Published: 08 Mar 2022, 09:06 PM IST
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