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LME Suspends Trading; Cancels Transactions

The London Metal Exchange (LME) has suspended trading in the nickel market due to an unprecedented spike in prices.

The surge in nickel prices, driven by concerns about supplies from Russia, led to brokers struggling to pay margin calls against unprofitable short positions. The largest nickel producer, Tsingshan Holding Group, and a major Chinese bank, China Construction Bank, were among those affected.

A Chinese tycoon, known as "Big Shot," who held a significant short position in the nickel market, is facing billions of dollars in mark-to-market losses.

The suspension of trading has raised concerns and drawn controversy, with some questioning the future of the market. The LME is considering a possible multi-day closure due to the geopolitical situation underlying the recent price moves.

The full implications of a default could have far-reaching consequences for the exchange, its members, and industrial users worldwide. Nickel prices continued to rally on the Shanghai Futures Exchange, and other metals on the LME declined after the trading suspension.

The LME had announced rule changes allowing traders to defer delivery obligations, but this did not address the issue of short position holders being unable to meet margin calls. The spike in nickel prices, if sustained, could impact the cost of electric-vehicle batteries and complicate the energy transition.

This is unlikely to be the last we hear about this event.

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