Nickel market open but frozen; lowers are expected

The nickel market officially reopened on Wednesday, but the reality is that it remains frozen.

Buyers have stood on the sidelines, watching prices reel from daily caps introduced this week by the London Metal Exchange. Electronic trading stalled 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 unfreeze and begin trading around $30,000 the ton, a level more in line with the current prices of the Shanghai Futures Exchange, that has remained open during the suspension of the LME.

That level is still 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 a 64% below the record price reached on March 8 amid an unprecedented short squeeze on 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 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 Jatiachief investment officer of Greenland Investment Managementa 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 could try to buy nickel on the LME to arbitrage between the Chinese and international markets, if LME prices fall far enough below Shanghai.

However, that implies further significant declines. On Friday, nickel for April delivery in Shanghai was trading at about $34,500 a tonne. Excluding the 13% value-added tax levied on the metal in China, that translates to about $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 Guangdathe Chinese tycoon who controls Tsingshan Holding Group Co.agreed to a suspension with its banks to avoid further margin calls.

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