The London Metal Exchange is getting ready to head to court and defend itself more than a year after it temporarily halted nickel trades. In March 2022, the London exchange was forced to stop nickel trading and cancel ongoing trades amid a once-in-a-decade crisis that saw nickel prices surge by 250% in just 24 hours.
At the center of the crisis was Xiang Guangda, a Chinese billionaire who runs one of the largest nickel producers in the world: Tsingshan. Shortly after the billionaire took a short position against nickel, Russia, a leader in global nickel production, invaded Ukraine and led to a worldwide shortage of nickel. The result was a significant increase in nickel prices that saw a commodity that usually traded at $20,000 to $30,000 cost $101,000 by March 8, 2022.
Since Chinese nickel producer Tsingshan had borrowed to cover its short position, the surge in nickel prices forced it to hold its short position and increased its costs to almost $3 billion at one point. This had a domino effect on brokers and banks that associated with the nickel producer and also took short positions, forcing them to buy back nickel contracts to cover margin calls of more than $16 billion.
The nickel crisis had major global effects, with the Hong Kong Exchange also halting nickel trading and canceling billions of dollars’ worth of trades on March 8.
The LME will now have to defend itself against a lawsuit from U.S.-based quantitative investing company Jane Street Global Trading and hedge fund Elliot Associates. Jane Street filed a $15.3 million suit against the exchange on June 2022, less than a week after Elliot Management filed a $456 million suit against the LME. The two institutions alleged that the actions taken by the London Metal Exchange to quell the chaos following the price surge put some clients at a disadvantage and infringed on their rights per the European Convention on Human Rights.
However, a representative from the exchange said that all the actions LME took on March 8 were legal and in the interest of the entire market. Furthermore, the LME representative claimed that the two lawsuits had no merit and were “based on a fundamental misunderstanding” of the events of March 8, 2022, and the actions taken by the LME to alleviate the issue. The two lawsuits by Jane Street and Elliot will be heard by two United Kingdom High Court judges.
Players in the nickel industry, such as Canada Nickel Company Inc. (TSX.V: CNC) (OTCQX: CNIKF), will likely follow how these lawsuits play out, given their potential to result in changes on how the nickel market operates.
NOTE TO INVESTORS: The latest news and updates relating to Canada Nickel Company Inc. (TSX.V: CNC) (OTCQX: CNIKF) are available in the company’s newsroom at http://ibn.fm/CNIKF
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