📈 Nickel’s Up 111% in a Day!
Market manipulation has caused nickel prices to soar. Here's how.
Oil prices are going sky-high and raising everyone's BP in the process.
But oil is not the only commodity that is rising.
Yesterday, Nickel also broke all records by rising 111% to $100,000/tonne!
The rise was so monumental that the London Metal Exchange (LME) had to halt nickel trading. What’s going on?
Nickel's Rise: Explained
You know, how for the last two years the root cause of everything was Covid?
Seems like this year's root cause is going to be the Russia-Ukraine war.
Russia is the third-largest producer of nickel. Explains it all, no?
But, have the supplies been threatened so much that the prices have shot up 111%?
Not really. The real reason is a short squeeze.
Huh?
You see, when people trade in futures contracts, they can take bets on whether the price of a commodity or share will rise (a long call) or fall (a short call).Â
The second process is called short selling (Here's our jargon-free explanation about futures and short selling).
When people take such long or short bets, they don't own the commodity. They are just borrowing it.Â
Yes, that's a thing you can do: borrow commodities and sell them on the market.
But what is borrowed must be returned.
So, essentially what short-sellers do is borrow when the price is high and sell it. Wait for the price to fall, buy the commodity then and return it to the exchange.
But what if the price doesn't fall?
Then you have a situation like the current one.
For the last few months, major market players including the Chinese Tsingshan Holding Group (the world's largest nickel and steel producer) had been shorting nickel, betting that its prices would go down.
But the prices went up.
Now, as these people were just borrowing the nickel, they had to pay a margin or a fee to secure their short position.Â
This margin keeps increasing if your bet goes wrong.
So, if you're hoping nickel prices will fall and they rise, you have to keep paying additional money to hold that short position until the price actually falls and you can buy nickel at a low price.
But since the price rose so much, the short-sellers didn't have enough money to pay their margins.
They had to buy nickel at the super inflated price as they now had to close their position and return the commodity to the exchange.
Now, what happens when you buy a lot of one commodity at the same time?
The price rises further!
That's exactly what pushed nickel to record highs yesterday.
And Tsinghshan is now looking down at losses worth $8 billion!
This was a historic short squeeze. But this is definitely not the first time this has happened.
Back in 1985, LME had to stop tin trading for five years because of a similar incident gone wrong.
Impact of Nickel Prices
The high nickel prices will impact certain industries like the electric vehicle industry which uses nickel to make EV batteries.Â
But most of us won't be affected as nickel is not a staple commodity like oil or food.Â
Moreover, analysts are betting prices will fall soon. Why?
Because a number of Chinese nickel mining plants are currently being set up in Indonesia, which will boost supply again.Â
So, it is still the rising oil prices that we need to worry about.
What other commodities do you think will record price hikes next?
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