The LME Nickel Squeeze

Tsingshan Holding Group, the world's largest nickel and stainless-steel producer, held a very large short position on the London Metal Exchange (LME) — a bet that nickel prices would fall, used as a hedge against the physical nickel it produces. That kind of hedge is completely ordinary for a producer. What wasn't ordinary was the size: Tsingshan's short position was reportedly worth well over a hundred thousand tonnes of nickel, a meaningful share of the LME's entire deliverable inventory, at a time when Russia's invasion of Ukraine (Russia being a major nickel supplier) was already pushing prices up and squeezing global supply.

The squeeze

As nickel prices climbed through early March 2022, Tsingshan's short position began generating enormous margin calls — cash it had to post daily just to keep the position open, even though the position was ultimately meant to be a hedge rather than a speculative bet. Other traders, aware of the size and stress of Tsingshan's position, could see that a forced buy-back to close out the short would push prices even higher, and bought nickel anticipating exactly that. On March 8, 2022, nickel prices doubled in a matter of hours, at one point trading above $100,000 a tonne — roughly four times its price just months earlier — a move with no precedent in the metal's trading history.

The LME's unprecedented response

Facing the prospect that several clearing members could become insolvent trying to meet margin calls on their clients' behalf, the LME halted nickel trading for over a week and, more controversially, cancelled all trades that had executed that morning — including trades between parties who had nothing to do with Tsingshan and had made legitimate profits on the move. The decision protected the exchange's clearing system from a cascade of defaults, but drew lawsuits from traders who argued the exchange had rewritten history to bail out a single large, politically connected participant.