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Commodity prices are rising as fears grow that Russian supplies will be disrupted by the ongoing war in Ukraine and sanctions imposed on Moscow.
Nickel, used in stainless steel and lithium-ion batteries, more than doubled this morning to a record high above $100,000 a tonne on the London Metal Exchange, before falling back a bit.
The stunning rise in nickel came as banks reduced their exposure to Russian commodity suppliers and major shippers shunned the country’s major ports, driving up metal prices dramatically. Russia is the third largest nickel producer, points out Reuters.
Nickel finished last year at $20,757/ton but has risen significantly in recent days. This price spike threatens to drive up factory prices, adding to inflationary pressures on consumers, and also crushing traders who had bet against it.
The London Metal Exchange market is in the throes of a massive squeeze in which holders of substantial short positions are forced to hedge at a time of low liquidity. To give an idea of the staggering rise of nickel, it has risen by around $11,000 per ton over the past five years. This week alone, it jumped $72,000.
“It’s getting crazy – it doesn’t reflect any of the fundamentals of the industry,” said Jiang Hang, head of trading at Yonggang Resources Co. The “LME trading system is out of control and requires intervention,” or contagion may spread. spread to other metals, he said.
Late Monday, the LME decided to allow traders to delay delivery bonds on all of its major contracts – including nickel – in an unusual turn for a 145-year-old institution that bills itself as the “market of last resort” for metals. The LME also gave a unit of China Construction Bank Corp. additional time to pay hundreds of millions of dollars in margin calls which were due to arrive on Monday, according to people familiar with the matter.
Other metals such as tin, zinc and copper are also up on fears that supplies from Russia could be disrupted by the war in Ukraine.
Palladium, used by automakers in engine exhaust to reduce emissions, has also hit record highs as financial sanctions on Russia, which produces 25-30% of the world’s supply, disrupt shipments and exacerbate a supply shortage.
“Commodity markets are increasingly pricing in a scenario in which a significant portion of Russian supply will be squeezed out of the market,” Morgan Stanley said in a note earlier this week.
“Prices are likely to remain very volatile, until the true impact on supply becomes clearer and prices can begin to settle at a new equilibrium.”
Stock markets are poised for further losses today as investors grow increasingly concerned about the economic outlook.
Wall Street suffered its biggest drop in more than a year last night as soaring oil prices threaten to push inflation even higher and slow the recovery. The selloff sent the tech-focused Nasdaq index into a bear market, down 20% from its all-time high.
European markets are set to fall further, after the German DAX also fell into a bear market last night.
Energy prices could also remain volatile, after the The Kremlin threatened to cut off gas supplies to Europe and warned that the price of oil could soar to $300 a barrel if Western allies escalate their economic war on Russia by banning energy imports.
- 11am GMT: BEIS Committee session on the impact of the Russian invasion of Ukraine on energy security in the UK and Europe
- 13:30 GMT: US trade balance for January
- 3pm GMT: IBD/TIPP survey on US economic optimism