This nickel surge (and market closure) is really fascinating in that it mostly broke the largest nickel producer in the world. -- (edited)
Posted by
spamlet
Mar 14 '22, 07:09
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You'd think surging nickel prices would be great for producers, and it is in the long term, but nickel producers hedge their inventory by selling nickel futures (effectively leaving them short nickel). So surging prices means they need cash *now* to put up additional collateral for their short positions.
Also, the type of nickel that is traded on the exchange is not what most of the nickel that's currently produced in the world is. The type produced is only 75% pure because that's all that's needed for batteries (the main use of nickel) but the exchange trades 98% pure. So even if the producer wanted to deliver the nickel to close out the trade they couldn't.
That's basically why the nickel markets have been shut for a week. The largest producer is so far underwater that if they opened the market to trading it would be chaos because they owe billions of dollars in collateral that they didn't have and it all had to get sorted out.
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