The Great Nickel Pickle

This is an audio transcript of the FT News Briefing podcast episode: The Great Nickel Pickle

Marc Filippino
Good morning from the Financial Times. Today is Friday, March 18th, and this is your FT News Briefing.

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We’ll start by hearing from one of our correspondents on the ground in Ukraine. The US’s top envoy said there were no signs that Russian president Vladimir Putin plans to stop the war. Plus, nickel traders have had a tough week. The London Metal Exchange hasn’t helped.

Katie Martin
It’s just incredible what’s been going on in this market. It all goes back to Russia as everything does right now.

Marc Filippino
We’ll take a look at what Katie Martin calls the “Great Nickel Pickle”. I’m Marc Filippino, and here’s the news you need to start your day.

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Russian forces continued to shell Ukrainian cities yesterday, perhaps the hardest hit is Mariupol, a port city in southeastern Ukraine. The FT’s Guy Chazan says there have been some evacuations, but many people haven’t escaped the siege.

Guy Chazan
The humanitarian situation is really dire because the whole city is encircled by Russian troops and they’ve been shelling it very heavily using multiple rocket launchers and artillery. There’s thousands of people who are stuck in bomb shelters without access to electricity, heating. Food and water is running out. There’s no mobile networks. A lot of people have been dying there.

Marc Filippino
Guy, what’s happening in the Ukraine capital of Kyiv?

Guy Chazan
The situation in Kyiv is also very troubling. The city is being shelled regularly by Russian forces. But what is unusual in Kyiv is that the Russian positions haven’t changed and they haven’t moved in a long time. The Russian offensive seems to have basically got bogged down, and they’re not advancing at all, and it’s still unclear what their long-term objective is when it comes to Kyiv. It’s a very big city. It will take thousands and thousands of troops to really sort of surround the city and blockade it. But that could be the Russians’ objective. It’s kind of difficult to tell at the moment, but it does seem that on several fronts, the Russian offensive has basically stopped.

Marc Filippino
Guy Chazan is the FT’s Berlin bureau chief. He’s currently reporting from Ukraine.

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Yesterday, the US said it doesn’t see much hope for a settlement to end the war. Secretary of state Antony Blinken said there were no signs Vladimir Putin was prepared to stop the invasion. Blinken also vowed Washington would investigate “war crimes carried out by the Russian military”. The US is also worried about China’s stance on the war, given Beijing’s close ties with Moscow. President Joe Biden is set to speak by phone with China’s president Xi Jinping this morning. It’s only the fourth time the two leaders have spoken. Biden reportedly will warn the Chinese leader of possible US retaliation if Beijing sides with Moscow.

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All week long, investors have been bracing for Russia to default on its international bond payments. But yesterday, JPMorgan processed interest payments sent by the Russian government for two of the country’s bonds. They paid in dollars, not in roubles as Moscow had threatened. The move made investors more confident that Moscow will not default on its debt. JPMorgan said it had sought approval from US Treasury officials before sending the $117mn in coupon payments off to Citi. Citi is responsible for distributing the money to investors. Moscow has claimed that Western sanctions are blocking it from servicing its debt. The US Treasury disagrees, saying sanctions do not stop Russia from paying bondholders.

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The market for yet another critical commodity has been roiled by Russia’s invasion of Ukraine. It’s nickel. You see, Russia’s a big producer of high-grade nickel. So investors have been panicking over supply disruptions. Trading has been so volatile, the London Metal Exchange shut down nickel trading for an entire week. And when it restarted trading on Wednesday, moments later it had to shut down again. To figure out what’s going on, I’m joined by the FT’s markets editor Katie Martin. Hey Katie.

Katie Martin
Hey, how are you doing?

Marc Filippino
I’m doing well. So as I said before, we’re talking nickel this week. Why did the London Metal Exchange shut down trading in the first place?

Katie Martin
So this is what I’m calling the “Great Nickel Pickle”.

Marc Filippino
Get out. Listen, make sure you trademark that, please. That is amazing.

Katie Martin
I’m trying to make it stick. It’s not sticking. [laughs]

Marc Filippino
We’ll make it stick. We’ll make up T-shirts. It’ll be great.

Katie Martin
I mean, it’s just incredible what’s been going on in this market. It all goes back to Russia as everything does right now. So, nickel, this metal was really useful for making things like electric cars, the price obviously skyrocketed after the war with Ukraine started, and this was a huge problem for people who put hedges on that were pointing in the opposite direction effectively. And so all of a sudden there was some traders out there that are getting huge demands for cash from their banks. And chief among them in the nickel market was the tycoon behind Tsingshan Holding, which is China’s biggest stainless steel group. He was badly in the hole as a result of this massive rise in the nickel price, which really was quite a disorderly rise. You know, it wasn’t like 5 per cent here or there. The price just shot up. The London Metal Exchange decided to do two things: first of all, to shut down trading, which is kind of a big deal in and of itself, but also to pretend that a whole period of trading from the previous day just hadn’t happened.

Marc Filippino
Wow. Well, can they do that?

Katie Martin
It turns out they can.

Marc Filippino
So, yeah. All right.

Marc Filippino
Hold on, I want to go back for a second. So Katie are you telling me that this really comes down to one person or entity trading on the LME? Is that right?

Katie Martin
I guess he’s the biggest example, and he was in a significant amount of trouble. He ended up having to come to an agreement with his banks that decided to go easy on him on some of the requests for cash that they had made just to try and keep the market orderly. But there are a lot of people and a lot of different parts of the commodities markets that are really getting hauled out by this massive rise in commodity prices that we have had ever since the war with Ukraine started. It’s really sending problems throughout the global commodities markets that it really is a very big moment for this exchange, which is a really historic exchange. But there’s nothing to stop other exchanges from trading some of the contracts that the LME specialises in. So it’s really got to get its act together on this.

Marc Filippino
Now, going back to some of the traders that you were talking about who are really trying to figure things out as commodities prices just jump all over the place. You know, we talked about this in yesterday’s show, the European Federation of Energy traders reaching out to governments and central banks for emergency liquidity support. You know, is that all part and parcel? Is this all the same thing?

Katie Martin
It’s kind of all part of the same thing, yes. So the nickel market is a very important market, but it’s nowhere near the size and importance of the oil and gas markets. And they’ve also been, as you can imagine, really volatile since the Russian invasion of Ukraine. There’s a lot of smaller trading firms that are not in the same sort of hole as we’ve had in the Nickel Pickle™.

Marc Filippino
Nice.

Katie Martin
But they are finding life incredibly difficult. They’re getting really substantial demands for margin and various kind of demands for cash from brokers to be able to get trades executed in the oil and gas market. So it’s the same sort of thing, but I guess the stakes are higher because if we start to see areas of serious dysfunction in the oil and gas market, then it’s not just a few traders losing money here and there. This is about the actual flow of actually seriously critical commodities around the world. It really ends up having a real world impact.

Marc Filippino
Katie Martin is the FT’s markets editor.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back next week for the latest business news. The FT News Briefing is produced by Fiona Symon and me, Marc Filippino. Our editor is Jess Smith. We had help this week from Gavin Kallmann, Peter Barber and David da Silva. Our executive producer is Topher Forhecz. Cheryl Brumley is the FT’s global head of audio, and our theme song is by Metaphor Music.

This transcript has been automatically generated. If by any chance there is an error please send the details for a correction to: typo@ft.com. We will do our best to make the amendment as soon as possible.