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David Fickling

The Nickel Market Will Be Broken Even After the LME Is Fixed

Until everyone agrees on a yardstick for pricing, this won’t be the last drama to hit the sector.

Setting the benchmark.

Setting the benchmark.

Photographer: Jason Alden/Bloomberg

Here’s one remarkable aspect of the short squeeze that briefly drove nickel prices to nearly quadruple in 48 hours earlier this month: The player who was squeezed to the point of making billions of paper losses each day is the world’s biggest producer of nickel, Tsingshan Holding Group Co.

Such an outcome is a bit like Exxon Mobil Co. getting caught on the wrong side of the oil market. A short squeeze only works on a trader who’s unable to cover their position, forcing them to buy back contracts at ever-escalating prices in a market where supply is vanishing. Tsingshan should be immune from that problem. The company aims to produce 850,000 metric tons of nickel this year. Short interest across the entire London Metal Exchange on the eve of the squeeze amounted to not much more than half that amount. If Tsingshan’s billionaire owner Xiang Guangda wanted to avoid those disastrous costs, he simply needed to deliver nickel from his plants in Indonesia into the LME’s warehouses in Singapore and Malaysia.