The focus on the London Metal Exchange on the morning of Tuesday March 8 is the short squeeze that has sent the nickel market wild - prices were up by over 100% at one stage on Tuesday morning from Monday’s close, at $101,365 per tonne, this after Monday’s 72.7% rise.
• Nickel experiencing panic short-covering as some major longs, shorts battle it out
• Russia threatening to cut off gas supply to Europe, while US considers banning Russian oil imports
Base metals
At 6.36am London time, the three-month nickel price on the LME came down to $78,000 per tonne - still up 55.1% up on the day. The second most volatile metal on Tuesday morning has been zinc, which was up by 15.1%, at $4,723 per tonne. The rest of the base metals were up by an average of 4.4%, with copper gaining 3.2% to $10,648 per tonne.
Trading on the Shanghai Futures Exchange has been more composed, helped by having limit-up controls in place. The April nickel contract hit its upper limit of 15%, April aluminium shed 2%, while the rest are up by an average of 6%. April copper gained 0.5% to 74,740 yuan ($11,823) per tonne.
Precious metals
Spot gold prices were recently up by 0.8%, at $2,013.86 per oz. Spot palladium prices have also raced higher to fresh record highs – prices rose as high as $3,429.50 per oz on Monday before closing at $3,010 per oz, and they were up by 6.9% at $3,217.50 per oz on Tuesday morning.
Wider markets
The United States 10-year treasury yield has rebounded to 1.78% from a low of around 1.69% on Monday.
Asia-Pacific equities were weaker on Tuesday: the Hang Seng (-1.73%), the Nikkei (-1.71%), the Kospi (-1.09%), the ASX 200 (-0.83%) and China’s CSI 300 (-2.01%) all declined.
Currencies
The US Dollar Index is racing higher and was recently at 99.17, compared with Friday’s close of 98.51.
Other major currencies were weaker: the euro (1.0872), sterling (1.3103), the Australian dollar (0.7285) and the Japanese yen (115.44).
Key data
Economic data already out on Tuesday showed United Kingdom retail sales monitor rising by 2.7% in February, after an 8.1% rise in January; Japan’s leading indicators were at 103.7% in January, after a reading of 104.8% in December, and Japan’s economy watchers sentiment index slid to 37.7 in February, from January’s 37.9.
Later, there is data on German industrial production, Italian retail sales, European Union final employment change and EU revised gross domestic production.
US data includes the small business index from National Federation of Independent Business, trade balance, wholesale inventories and economic optimism.
Tuesday’s key themes and views
Nickel prices are undergoing unprecedented levels of volatility as the supply chain adjusts to the threat of disruptions, whether it be from Russian supply, or due to energy shortages/high prices that affect metal production outside of Russia. But on top of the potential for physical shortages, the market is also having to bear the price volatility generated within the LME system where positions need to be financed or covered – when a market becomes illiquid, as is the case with nickel, that can lead to a massive increase in volatility. The other metals seem better placed to weather the storm, but are likely to remain volatile as they tread the line between supply disruptions and the raised possibility of high energy prices sending economies into recession.
The combination of increased inflationary pressure on the back of higher commodity prices, heightened concern over where the Russian/Ukraine war is heading and the likelihood that higher energy prices could tip economies into a recession and therefore prevent, or delay, central banks from tightening monetary policy are all tailwinds for gold.