For the second consecutive day, benchmark London Metal Exchange (LME) nickel prices jumped by 15% exchange limit (to $37,235 per metric tone). LME said that the second ring session on March 24 will be deemed a disrupted session and all agreed trades during the session will be null and void.
WisdomTree Investments announced on March 21, that their Wisdom Tree Nickel 3x Daily Leveraged exchange-traded commodity (3NIL) is being compulsorily redeemed. The product used swaps to deliver three times the return of nickel futures surged more than 600% this month before the LME halted its nickel trade. The market reopened on March 16th and the nickel price plummeted by the most allowed for four days in a row, bringing 3NIL to an untimely demise.
This occurred about 2 weeks after their inverse investment product 3NIS, was also redeemed, due to the extreme price volatility in the nickel market this month.
“Due to continual movements in nickel prices since the 7 March 2022, on 21 March 2022 (the “Trading Day”), the Calculation Agent has determined that the Intra-day Price of the Commodity Contracts of the same class as the Impacted Product has fallen to or below zero during the Trading Day.” , the issuer stated.
WisdomTree further stated that the redemption amount of the security has been calculated as zero, so investors should not expect any money from the securities they hold. The largest company involved is this fiasco Tsingshan Holding group, headed by Xiang Guangda, nicknamed “Big Shot”. They faced $8 billion dollars in trading losses.
Bloomberg reported that Tsingshan Holding Group has secured credit promises from banks including JPMorgan Chase and China Construction Bank that could allow it to avoid defaulting on its margin calls.
Needless to say, reactions in the investment world over the last 2 weeks were mixed.
The Financial Times reported LME’s Chief executive Matt Chamberlain, said that the cancellations were necessary because the enormous size of the short position, was a systemic risk and placed significant stress on a number of their core members.
According to Mark Thompson, Executive Vice Chairman at Tungsten West Ltd. the numbers for the cancelled trades are staggering. 9,064 lots trading at a Volume Weighted Average Price of $71,743 – making the contract value $3.9 billion.
By cancelling the trades and moving the price back down to $48,078 as if this never happened – the London Metals Exchange wiped out over $1.3 billion dollars of profits and losses on these trades.
Mark called the cancelation of these trades between willing buyers and sellers “unforgiveable.”
He requested that Nickel market participants who lost money from LME trade cancellations, reach out to him for possible legal actions against the LME.
The Russia/Ukraine conflict has put additional strain on an already tight nickel market, where the supply is being picked up from increasing demand for nickel for electric vehicles.
