Nickel’s wildness makes it a special case, but high prices are causing a broader risk retreat from the industrial metals sector as even the biggest players struggle to cope with the cost of financing positions.
The outsized short positions accumulated by Chinese nickel and stainless producer Tsingshan are subject to stand-still agreements but they are still there.You can start to see why the LME has brought in price limits and why it feels it can count on “broad support for retaining the daily price limits for the foreseeable future so as to minimize the potential for disorderly price moves.”
Open interest fell over the ensuing three months, dipping to a decade low in January, which is why there was little immediate reaction to the nickel debacle. The bank notes that while the S&P GSCI commodities index has risen by 125% since October 2020, investment in the Bloomberg Commodities Exchange is up by only 7% on a price-adjusted basis over the same period.
So too has the withdrawal of many banks from the commodities finance and trading space over the last 10 years.