The London Metal Exchange nickel crisis and lasting reforms

Nickel prices at the London Metal Exchange surged by more than 100 percent to exceed US$101,365 per ton in early March 2022. Before this spike, rangebound trading rarely broke above the $20,000 per metric ton mark. Prices rose to $25,000 in January before easing by the end of the month. They moved higher again in February before the Russian invasion of Ukraine. Russia provides about 10 percent of the global nickel supply. The conflict triggered supply concerns and drove prices up by 96 percent compared to pre-invasion levels. This volatility follows a long history of price shifts. In the 1970s, large producers like INCO, Falconbridge, and Societe Le Nickel controlled 75 percent of world nickel demand. They set prices using producer lists. A 1969 strike in Canada caused shortages and price spikes, which made buyers lose faith in those lists. By 1982, the industry switched to LME prices because producer prices collapsed.

The LME intervention was necessary.

The short squeeze intensified when Tsingshan Holding Group attempted to cover its massive position. Xiang Guangda, the founder of the world’s largest nickel and stainless-steel firm, held a short position of more than 150,000 tonnes of nickel. This volume equaled approximately one-eighth of all LME outstanding contracts at its peak. Only one-fifth of the total nickel exposure was visible to the exchange because the rest was held in private over-the-counter trades. These trades involved banks such as JPMorgan Chase, BNP Paribas, Standard Chartered, and United Overseas Bank Ltd. Tsingshan produced nickel pig iron with 10 percent nickel content and high nickel matte with 70 percent content. These products do not meet the LME requirement of 99.80% purity. This mismatch creates basis risk and delivery risk. A short seller faces basis risk when spot and futures prices deviate. Delivery risk occurs when a trader cannot provide physical metal before a contract expires. The surge in prices caused an $8 billion margin call for Xiang Guangda.

The market eventually recovered.

The LME suspended all nickel trading on March 8, 2022, at 8:15 am. The exchange then cancelled all nickel trades executed on or after midnight local time that day. This decision transferred approximately $27.4 billion from long position holders to short position holders. The aggregate value of these cancelled trades was approximately $12 billion. If the LME had allowed prices to stand at over $100,000, Tsingshan would have owed an estimated $15 billion. The exchange argued that the market became disorderly and that allowing the trades would create systemic risk. The decision effectively bailed out investors like Tsingshan and clearing members that could not transfer the required margin.

The LME’s decision remains controversial.

The Administrative Court dismissed judicial review proceedings brought by Elliott Associates LP and Jane Street against the LME. These claimants argued the LME lacked the power to cancel trades. The court held that the LME’s decision to cancel the nickel trades was not unlawful, as the LME rules provided the exchange with specific powers to manage market integrity during periods of extreme volatility. Rule 22 allows the exchange to cancel, vary, or correct any Agreed Trade or Contract if the exchange considers it appropriate. The court also found that the LME did not act for an improper purpose. The decision to ensure an orderly market and prevent multiple member defaults was valid. The judges noted the urgency of the situation on March 8, 2022, made consultation with claimants unnecessary. You should understand that the LME’s authority rests on private contract law.

The FCA investigated the exchange.

The Financial Conduct Authority concluded its investigation in early 2025. The regulator imposed a £9.2 million fine on the LME for regulatory failures. The FCA found that the LME rulebook lacked clear provisions for suspending trading or cancelling trades during extreme circumstances. Governance arrangements were inadequate for making decisions of such significance under time pressure. The regulator also found that the LME did not have adequate arrangements to monitor and manage risks from concentrated positions. The exchange was described as being asleep at the wheel.

The LME introduced new volatility and price control frameworks. The exchange uses daily price limits, static price bands, and dynamic price bands. For nickel, the current 3-month outright daily price limit is 15 percent. This limit is a fixed percentage of the previous day’s 3-month closing price. The dynamic price bands move in line with the last traded price plus or minus a USD value. Static price bands refresh hourly based on an anchor price. In 2023, the LME began requiring members to disclose their over-the-counter nickel positions on a weekly basis. This measure helps the exchange monitor position concentrations across both exchange and off-exchange markets.

Nickel trading volumes returned to pre-crisis levels by late 2024. Average daily volume for nickel reached 60,991 lots in the first quarter of 2026. This is a 75 percent increase over the 34,840 lots traded in Q1 2023. The LME added four physical suppliers to its network, which can provide up to 100,000 metric tons of additional stock. These suppliers are primarily Chinese refiners using Indonesian nickel ore. The exchange also expanded its warehouse network to include Jeddah, Saudi Arabia, and additional capacity in Hong Kong.

The recovery is steady.

The LME faces new competition from the Shanghai Futures Exchange and the CME Group. The SHFE allows overseas traders to trade nickel futures and options. A startup called Abaxx is building infrastructure to offer a futures contract based on nickel sulphate. Another company, Global Commodities Holdings Limited, plans to launch a platform for spot trading in physical nickel. This company is led by former LME CEO Martin Abbott. Brokers remain cautious regarding Tsingshan. Some firms, including JPMorgan Chase & Co., stopped trading for the company. The LME clearinghouse also charges concentration margin for nickel positions exceeding a few thousand tons. Will the emergence of new competitors like Abaxx actually erode the LME’s dominance? The LME continues to manage the tension between market stability and the growing demand for competitive pricing alternatives.