Column: Metals melt down as recession fears overwhelm supply woes.
Sign Up for the Copper DigestIn March the London Metal Exchange suspended its nickel contract after the price spiked to more than $100,000 per tonne. Three-month nickel is now trading around $22,500, pretty much back where it was before the descent into chaos.
Fears of sanctions against Russian metal helped drive prices to those record highs in March. But flows of Russian aluminium, copper and nickel have so far been largely unaffected. This is symptomatic of the broader investor landscape in metals, with heavier-weight funds trimming passive long exposure and systematic trend-following funds selling into price weakness.
That speaks to a lack of conviction about the strength of any recovery in the world’s largest metals user.The speed of the base metals price collapse is partly explained by a drainage of liquidity on the London Metal Exchange in the wake of its controversial suspension of the nickel market and subsequent cancellation of trades.
The resulting elevated volatility is reducing financing capacity for physical players as banks reassess their exposure to the metals sector.It’s possible such financing constraints could lead to inflows of metal at LME warehouses, reversing a defining trend of recent months. Or the lengthening list of aluminium smelter curtailments in Europe and the United States, as high energy prices take a toll on a notoriously power-intensive sector.
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