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Commodity prices are surging as fears grow that Russian supplies will be disrupted by the ongoing Ukraine war and sanctions imposed against Moscow.
Nickel, used in stainless steel and lithium-ion batteries, more than doubled this morning to a record high above $100,000 a ton on the London Metal Exchange, before easing back a little.
The astonishing surge in nickel came as banks cut their exposure to Russian commodities suppliers and major shippers avoid country’s key ports, sending metal prices dramatically higher. Russia is the third largest nickel producer, Reuters points out.
Nickel had ended last year at $20,757/tonne, but has pushed dramatically higher in recent days. This price surge is threatening to drive up prices for factories, adding to inflationary pressures on consumers, and also squeezing traders who had bet against it.
The market on the London Metal Exchange is in the grip of a massive squeeze in which holders of substantial short positions are being forced to cover at a time of low liquidity. To give a sense of nickel’s dizzying surge, it has risen around $11,000 a ton over the last five years. This week alone, it’s jumped by as much as $72,000.
“It’s going crazy — it’s not reflecting any industry fundamentals,” said Jiang Hang, head of trading at Yonggang Resources Co. The “LME trading system is out of control and requires intervention,” or the contagion may spill over to other metals, he said.
Late Monday, the LME decided to allow traders to defer delivery obligations on all its main contracts — including nickel — in an unusual shift for a 145-year-old institution that touts itself as the “market of last resort” for metals. The LME also gave a unit of China Construction Bank Corp. extra time to pay hundreds of millions of dollars in margin calls that were due Monday, according to people familiar with the matter.
Other metals such as tin, zinc and copper are also rattling higher, on concerns that supplies from Russia will be disrupted as the war in Ukraine.
Palladium, used by automakers in engine exhausts to reduce emissions, has also jumped to all-time highs as financial sanctions on Russia, which produces 25-30% of global supply, disrupt shipments and worsen a supply shortage.
“Commodity markets are increasingly pricing in a scenario under which a significant portion of Russian supply will be excluded from the market,” Morgan Stanley said in a note earlier this week.
“Prices are likely to remain highly volatile, until the real supply impact becomes clearer and prices can start to settle at a new equilibrium.”
Stock markets are set for fresh losses today, as investors grow more concerned about the economic outlook.
Last night Wall Street suffered its biggest slide in more than a year, as the surge in the oiil price threatens to drive inflation even higher and slow the recovery. The selloff pulled the tech-focused Nasdaq index into a bear market, down 20% from its record high.
European markets are set to fall further, after Germany’s DAX also fell into a bear market last night.
Energy prices could remain volatile too, after the Kremlin threatened to cut off gas supplies to Europe and warned that the price of oil could rocket to $300 a barrel if the western allies step up their economic war against Russia by banning energy imports.
- 11am GMT: BEIS committee session on how Russia’s invasion of Ukraine is impacting energy security in the UK and Europe
- 1.30pm GMT: US trade balance for January
- 3pm GMT: IBD/TIPP survey of US economic optimism