The 145-year-old London Metal Exchange prides itself on being an orderly and reliable marketplace. But last week, a record spike in the price of nickel was anything but.
"The best way to describe what has happened is basically a physical supply risk, with Russia being sidelined from the market, translating through to a financial market event. And in particular, what we're talking about is a short squeeze," CBA commodities analyst Vivek Dhar said.
After picking up pace in the previous trading week, the price of nickel surged by 90 per cent last Monday and briefly hit above $US55,000 ($75,819).
On Tuesday, things got even more volatile. The nickel price skyrocketed briefly above $US100,000, paring its gains to $US80,000 before the London Metal Exchange (LME) intervened, suspended trading and cancelled the day's transactions.
The nickel price now sits at about $US48,000. Overnight on Monday (Australian time) the LME announced nickel trading would resume on March 16.
The last time the LME suspended trading was when an international tin cartel collapsed in 1985.
"It is a really unprecedented market that we're heading into," Wood Mackenzie principal nickel analyst Angela Durrant said.
The high drama on the LME has largely been blamed on the world's biggest nickel and stainless steel producer, Chinese company Tsingshan Holding Group, which is controlled by billionaire Xiang Guangda.
"He has in the past made big bets on the markets, and this is one in which he's made a very large bet and it's come unstuck," BetaShares chief economist David Bassanese said.
Russia produces about 17 per cent of the world's high-grade nickel. Supply concerns because of Russia's invasion of Ukraine saw prices lift.
Tsingshan Holding Group held the biggest short position for nickel on the LME. It had sold nickel forward on the markets, betting on the price going down, not up.
Tsingshan and others had to buy back their contracts or put actual nickel against it. The company now reportedly faces up to $US8 billion in losses.
Mr Bassanese said the size of Tsingshan's short position meant there was a major risk of contagion.
"You're almost looking at a Lehman-[Brothers]-type event because of the size of the position that he had and the potential repercussions if he had to try to liquidate that all in a single day," Mr Bassanese said.
"You're too big to fail almost sometimes. And I think this is what we're seeing at the moment — the market closed down rather than let him fail and cause the market to implode."
There is now speculation Tsingshan could be bailed out by the Chinese Communist Party.
"They (Tsingshan) can't actually physically deliver the nickel that they promised they would as part of this bet," he said.
"But the Chinese government does have stores of nickel of sufficient quality. So again, one potential here is that a deal is done with the government to supply that nickel to the market."
Last week Tsingshan's woes sunk the share price of ASX-listed Nickel Mines because the Chinese firm is a majority shareholder.
Ms Durrant said the chaos on the LME had spooked investors.
"There's a lot of investors who are obviously quite panicked and concerned by what has occurred here," he said.
LME stocks of nickel had been continually going down over the past couple of years to low levels.
"This material, we believe, was going to Tsingshan. And they're holding on to LME-grade material. But you've got to remember they're a stainless steel producer and a nickel pig iron producer. They don't actually need LME-grade nickel or pure nickel for their operations. So it really is very much a market-driven choice."
As for consumers, Mr Dhar does not expect consumers to feel much of a price pinch, at least in the short term because he expects the commodity's price to cool.
"In our view, a long run price for this commodity is somewhere between $US15,000 to $US20,000," he said.
"Now, how exactly we get there, that is going to be the key question.
"The expectation this year was we would see significant supply growth coming out of Indonesia, and that will put downward pressure on nickel."
Australian miners produce about 7 per cent of the world's nickel.
As the world goes green, miners are also ramping up to meet the forecast demand. Western Areas is reopening an old nickel mine site in Western Australia. It is a trend that is being seen around the country.
Western Areas CEO Dan Lougher said high demand for the metal was here to stay.
"I think that we've got a pretty strong growth profile going forward on the back of electric vehicle demand."
"Do we like high prices? Absolutely. Do we like them volatile, probably not as volatile as we saw."
