Nickel prices tumble as LME scrutinises volatile trading

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LONDON (Reuters) -The London Metal Exchange (LME) said on Wednesday it was conducting enhanced monitoring of nickel trading after prices fell as much as 12% in volatile and illiquid conditions.

The fall came after a blistering rally in which the metal used to make stainless steel surged by 40% in just two weeks and on Monday breached the LME's 15% daily limit on price swings.

Traders blamed low liquidity for the volatility, the most severe since March. The London Metal Exchange (LME) on March 8 cancelled all nickel trades and suspended the market for more than a week after prices doubled in a matter of hours.

"The LME notes the current volatility in nickel," the exchange said in a statement. "The price limits in place are functioning as expected and the LME is undertaking enhanced monitoring to ensure that participants' trading activities are being conducted appropriately."

Other industrial metals such as copper and zinc have also risen on hopes that China will abandon its zero-COVID policy and the pace of U.S. interest rate rises will slow, boosting economic growth and metals demand, but the moves were a fraction of nickel's.

Traders in the physical market and speculators bought metal to reverse short positions ahead of contract expiry on the Shanghai Futures Exchange on Tuesday and LME on Wednesday, said Al Munro at brokerage firm Marex.

Once these contracts expired, the need to buy evaporated, creating downward pressure on prices, he said, adding that buying interest from China dried up as nickel headed towards $30,000.

Adding to turbulence was news on Tuesday that New Caledonian nickel producer Prony Resources would cut output after a leak from its tailings dam.

Benchmark LME nickel racked up six consecutive days of gains between Nov. 8 and Nov. 15, starting the first at $23,330 a tonne and reaching as high as $31,275 on the last.

At 1852 GMT on Wednesday, nickel was down 11.8% at $26,700 a tonne.