The extreme turbulence of the nickel price on the London Metal Exchange LME, which led to the suspension of trading in March, is now also the concern of the financial regulator.

The FCA and the Bank of England's PRA regulation department have now jointly announced that they will be investigating what is happening at the London Metal Exchange (LME).

Philip Pickert

Business correspondent based in London.

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The exchange halted trading on March 8 after the price of a ton of nickel jumped from just over $42,000 to over $100,000 the night before.

The LME called the situation "irregular" and canceled around 9,000 transactions worth $4 billion.

The resumption of trading two weeks later became chaotic again and the stock market hit the brakes again as the price broke out of the newly set band.

Since then the market has calmed down.

As FCA and PRA wrote, the metal exchange must remain “vigilant”.

The central bank wants to examine the internal governance of the LME and its risk management.

Price on extreme peaks

It is suspected that the stock exchange suspended trading on March 8, also due to pressure from China.

The metal exchange has been owned by Hong Kong exchange operator HKEX for a decade, which is now indirectly under Beijing control.

The extreme price increase on March 8th - after a price rally since Russia's Ukraine attack - was triggered by the bad speculation of the Chinese metal mogul Xiang Guangda and his iron and nickel group Tsingshan Holdings.

Xiang had bet on a falling nickel price and built a short position of about 150,000 tons of nickel, 30,000 tons directly with the LME and the rest through banks.

However, as the price rose, Tsingshan was forced to buy large quantities of nickel to reduce the short position and margining costs.

This drove the price to an extreme peak.

Xiang threatened billions in losses.

By suspending and canceling the trade and by taking out large loans in the meantime, billionaire Xiang has largely avoided the losses.

Nickel currently costs $33,245 a ton, 10 percent cheaper than in mid-March.

The metal is an important raw material for the steel, car and battery cell industries.

About a tenth of the annual production, but especially the high-quality nickel, comes from Russia.

Tsingshan mines an inferior, cheaper variety of nickel from Indonesia.