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Why nickel breaks records after the war in Ukraine

Nickel, which is used to make stainless steel and batteries for electric vehicles, took an unprecedented turn on Tuesday when London suspended trade after prices skyrocketed amid the crisis in Ukraine.

Moscow’s invasion of neighboring Ukraine sent the market soaring to over $100,000 a tonne as concerns over Russian supply led to sharp volatility.

– the role of Russia –

The conflict in Ukraine shook up already tight global supplies, as Russia is a major producing country.

The market then went into orbit with traders fearing possible Western sanctions against the mining sector.

“Russia is the third largest supplier of nickel, accounting for nearly 13 percent of total global nickel mining capacity by 2021,” said Rystad analysts Marina Bozkurt and Susan Zou.

Russia accounts for 11.3 percent of global nickel production.

This week’s nickel gains easily outperformed Russia’s other major commodities, including aluminum, gas and crude oil.

– The market background –

Prior to the war in Ukraine, nickel has gained a lot of support over the past two years as the coronavirus pandemic severely disrupted the supply of raw materials.

Demand is now picking up as the global economy recovers from the impact.

The metal is used in electric batteries to aid in the transition from fossil fuels to cleaner green energy.

The nickel price had already risen by 30 percent in 2019, by 20 percent in 2020 and by another 25 percent in 2021.

– The price spiral –

Prices were catapulted upward on Tuesday by a so-called short squeeze, commentators say.

This happens when investors bet on falling prices, but are then forced to close their positions and buy at a much higher price, causing an exceptionally volatile spike.

“Some market participants who had been betting on falling prices were clearly surprised and misled by the price rise and momentum since Russia’s invasion of Ukraine,” said Commerzbank analyst Daniel Briesemann.

The metal had already surged past its 2007 peak on Monday, reaching $54,880 a tonne.

Nickel rocketed to a record high of $101,365 on Tuesday.

Prices plunged back to $80,000, up 66.4 percent from Monday, before the London Metal Exchange shut down.

– What now? †

The LME said in a statement it has decided to suspend trading for at least the remainder of Tuesday.

Market followers argue that such record price levels do not reflect the state of supply and demand.

“Due to the massive price hikes, suppliers have stopped making offers pending market clarity, as current nickel prices cannot be justified solely on market fundamentals,” added Rystad analysts Bozkurt and Zou.

Nevertheless, prices are expected to continue to receive support from the war in Ukraine.

That will continue to drive up the cost of batteries for electric vehicles and slow down the energy transition, analysts say.

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