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Metal markets continue to suffer huge gyrations

Humanity is going through one of its darkest times with the conflict in Ukraine. It is important to say that the entire BIR Non-Ferrous Metals board stands united at this time of crisis and that we are joined together in hoping and praying for the earliest possible restoration of peace and safety for all.

The economic sanctions announced against Russia, as well as estimates of resulting material deficits, have caused some huge gyrations in the metals complex this month, to such an extent that the LME had to suspend its nickel contract and unwind thousands of deals in response to a 250% spike in values over the span of just two sessions; a scenario such as this was last seen in 1985 when the LME had to suspend tin trading.

Suspension of the nickel contract has raised questions over the sanctity, transparency and efficiency of the 145-year-old exchange. The LME cancelled all 5000 of the nickel trades that had been executed on March 8, worth nearly US$ 4 billion. It is estimated that around US$ 1.3 billion of profit and loss got wiped off through those deals. Surely this did not go down well with those holding long positions, some of whom are seeking legal recourse.

While trading has reopened intermittently, with some fixed bands on volatility, it has been a harrowing experience overall for the manufacturers, consumers and processors who actually use this platform to hedge and offset forward risks. It has widened the trust deficit between the exchange and physical markets, with the latter consistently scrambling to pay up overnight margin calls in addition to maintaining the price balance of its entire value chain.

While the world is still trying to estimate the economic impact of the Ukraine conflict and associated sanctions, the rise in COVID cases in China and Hong Kong is stoking fears of a possible fourth wave of the virus. Lockdowns in some major cities could place global supply chains in further disarray and puncture the global economic recovery.

The commodity markets have already seen hyper-volatility on account of the Ukraine conflict, financial sanctions, the energy crisis, growing inflation, etc. COVID spreading its tentacles once again would be another bitter blow.