A spike in nickel prices that forced the London Metal Exchange to suspend trading March 8 exposed underlying tightness in nickel supplies that may get worse if Russia, a major global nickel supplier, can no longer bring its wares to market due to the war with Ukraine.

The nickel market was in deficit in 2021 and had been poised to go into a modest surplus in 2022 before Russia's Feb. 24 invasion of Ukraine. Investors and other market participants now worry that a prolonged conflict could eventually keep Russia, the fourth largest global supplier of primary nickel, out of the market, driving up nickel prices further.

Fears of a reduction in global nickel supplies drove short sellers to try and cover their bets, leading to a record nickel price of $100,000 per tonne, which triggered the metal exchange to suspend trading. The unprecedented prices will likely moderate but remain high, potentially driving up the price for nickel-rich batteries that go into electric vehicles, analysts said. The LME's suspension of trading could last for days, according to the exchange.

"The fallout from Russia invading Ukraine and the subsequent sanctions imposed by the United States and European governments has been a factor behind significantly elevated fears that nickel exports from Russia, one of the world's largest producers of mined and primary nickel, could be disrupted," said Jason Sappor, a senior analyst for S&P Global Commodity Insights. "This has triggered panic buying in an already tight primary nickel market, underpinning the recent jump in the LME nickel price."

Nickel is a key ingredient in multiple types of lithium-ion batteries used to power EVs. The ballooning nickel prices could hit EV-makers' bottom line hard and force them to push the higher raw material costs on to consumers just as demand for EVs heats up. Global sales of EVs rose 106.8% in 2021, according to Commodity Insights.

Automakers are already struggling with high material costs, and nickel was expensive before the invasion. Battery metal costs for nickel-manganese-cobalt batteries shot up 124% over the past 12 months, while costs for lithium-iron-phosphate batteries, which have no nickel in them, spiked 434.4%, according to a Feb. 28 report by Commodity Insights senior analyst Alice Yu.

Although nickel prices will likely drift downward in the coming weeks, high nickel prices could persist through the second quarter, said Mark Beveridge, a principal consultant at Benchmark Mineral Intelligence.

"Ultimately, that will mean higher vehicle costs," Beveridge said in an interview. "It's kind of a big deal."

Warehouse stocks of nickel had been declining through much of 2021 as battery-makers used up reserves in the face of a 181,000-tonne nickel deficit for the year. Stocks continued to fall as Russia prepared for and launched its invasion of Ukraine, dropping month over month by 11.6% as of Feb. 22, according to Commodity Insights.

Russian nickel producer PJSC MMC Norilsk Nickel produced 238,875 tonnes of nickel in 2020, accounting for about 9.8% of the world's nickel supply, according to S&P Global Market Intelligence data. The company did not respond to a request for comment for this story, but it told Commodity Insights on March 1 that it has been able to continue shipments. Russia has only been bogged down further in the weeks since, and investors fear that metal buyers could begin to avoid Russian nickel or that global governments will impose sanctions on the commodity.

"Movement of the market towards surplus looks increasingly hard," Beveridge said.

The LME three-month nickel price increased on the news of Russia's incursion Feb. 24, reaching an 11-year high of $25,575/t in trading, while LME nickel stocks fell in the weeks leading up to the invasion, according to Commodity Insights. The three-month nickel price closed March 7 at $48,078/t, far above the $22,764/t recorded at the start of February. In the early hours of March 8, the three-month nickel price surged to $101,365/t, Reuters reported, which prompted the London Metal Exchange to halt nickel trading.

The spike in nickel prices ahead of the LME trading suspension was unprecedented and reflected a "liquidity crisis" with one big short position weighing over the market, Tom Mulqueen, head of research at Amalgamated Metal Trading Ltd., said in an interview.

"The fundamental story for nickel was quite bullish before the Russian invasion of Ukraine," Mulqueen said. "That just added fuel to the fire and triggered this chain reaction of margin calls. You have shorts who have not been able to deliver on their margin calls, and that has just been self-reinforcing in the price. I do not think anyone was anticipating the scale or pace of what we have seen over the last couple of days."

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