The London Metal Exchange's two-week-long inability to facilitate the free flow of nickel trades has locked up the nickel market from investment and sowed uncertainty across the metal's supply chain.

The LME provides crucial price transparency for nickel suppliers and buyers negotiating long-term nickel supply deals and gives critical signals to financers looking to back production capacity growth amid high prices. But the exchange has been gripped by chaos since March 8, when a short squeeze sent the three-month nickel price to over $100,000 per tonne, leading to the suspension and cancellation of trades for that day. Trading stopped until March 16, when circuit breakers were again tripped after only a brief trading period as prices fell below a lower limit set by the LME. Electronic trades were sparse and halting through March 18.

Meanwhile, the Shanghai Futures Exchange has continued to trade nickel, but it too has had hiccups, with a one-day nickel trading freeze.

With just the Shanghai exchange and halting LME trades to go by, the nickel market has come to a near standstill just as buyers seek to move away from Russian sources in the wake of that country's invasion of Ukraine.

"The nickel market is frozen right now," said Chris Berry, an independent battery metals analyst and president of House Mountain Partners. "We're all trying to figure out, generally speaking, what this means. And when nickel is at $20,000/t one day and then goes to $100,000/t, it doesn't make any sense. That obviously impacts price discovery, which is the main function of financial markets and clouds battery economics over the longer term as well."

Diversifying nickel

Nickel price volatility and haphazard trades on the exchange have exposed battery and stainless steel makers to bruising supply shocks, leaving market participants and companies waiting on the sidelines for calmer times while also spurring some to call for new nickel projects outside of Russia and China.

Recent gains in nickel prices have been linked in part to fears that nickel supply would be cut off from European and North American markets due to sanctions tied to Russia's invasion of Ukraine. LME stocks of the metal decreased throughout February and into March due to fears of possible trade restrictions on Russian nickel.

Russian mining company PJSC MMC Norilsk Nickel is the world's largest supplier of primary nickel. In 2021, it produced 193,006 tonnes of class 1 nickel, a primary nickel product used in electric vehicle batteries, according to S&P Global Commodity Insights. China and Indonesia are also among the world's leading producers of primary nickel.

"The current LME nickel crisis has been a wake-up call to the importance of a secure domestic supply in the U.S., Canada, EU and Australia," said Todd Malan, chief external affairs officer and head of climate strategy at Talon Metals Corp., a mining company developing the Tamarack nickel project in central Minnesota to supply EV giant Tesla Inc. with battery materials. "We are now seeing governments considering a variety of options to support nickel exploration, mining and processing. This is an important signal to the market."

But developing more mines in other parts of the world or expanding existing mines relies on a major influx of capital, and volatility on the LME has chilled investor interest.

"With all this dysfunction in the market, market participants don't want to commit capital, they're really pulling back to reduce risk," Tom Mulqueen, head of research at Amalgamated Metal Trading Ltd., said in an interview. "We've seen reluctance amongst market participants to finance metals because they're trying to conserve capital."

Impact on battery supply chain, EV rollout

No sanctions have been imposed on nickel exports from Russia. Norilsk Nickel said in a March 1 statement that its nickel operations were proceeding as usual. But the Russian nickel giant may eventually be pressured to reallocate its units away from Europe and toward China instead, multiple analysts said.

"You should see a reallocation of Norilsk units basically between Europe and China," said Mark Beveridge, a principal consultant for Benchmark Mineral Intelligence. That shift would force European nickel buyers to turn to new suppliers in countries such as Canada and Norway for high-grade nickel, upheaving European battery supply chains.

Reduced supply and higher nickel prices could put a dent in the rollout of EVs. "It will certainly hamper battery development or growth," House Mountain Partners' Berry said. "When you have nickel at $48,000/t on the LME and then plug that into the cost of a battery, it really, really hurts battery economics."

Norilsk could not be immediately reached for comment.

LME executives are attempting to get trades up and running again, allowing greater and greater movement of the price of nickel; however, each day, the price has hit limits set by the 145-year-old exchange, sparking trade delays.

"The current events are unprecedented," the LME said in a March 8 statement. "The LME is committed to working with market participants to ensure the continued orderly functioning of the market. The suspension of the nickel market has created a number of issues for market participants which need to be addressed."

As of March 18, US$1 was equivalent to 6.36 Chinese yuan.

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