Don't confuse physical inventory tonnages held in LME-accredited warehouses with the ability to close-out your existing short positions (as a buyer) with new sellers who might be willing to enter the fray.
Those inventory numbers are more relevant to short position holders who intend to hold until contract expiry. A 'covered' shorter, if you will, who will have their physical tonnage stored in the warehouse and will be holding a Live Warrant (certificate) representing that physical holding which can be (figuratively) handed over when delivery becomes due, after contract expiry.
Remember, a futures contract can be created out of thin air. New sellers don't need their new short positions to be backed ('covered') by physical holdings. They can sell 'naked' (without holding physical) but they'll need to be careful (as usual) to not be still holding short at contract expiry, otherwise they will default because they have nothing to deliver. The solution for naked sellers is to to exit (buy back) or rollover (also a buy-back) prior to contract expiry.
In lay and very simplistic broad brush terms, the pathway out of this mess for TS/BS is:
1) Close/reduce his short positions by finding enough new sellers whom he can buy from. Good luck with that in the near term.
It matters not whether these new sellers are covered or naked, only that they materialise and are prepared to deal. But will they? Will the seller's strike continue? The covered v. naked issue becomes relevant to those new sellers around the time of contract expiry.
Note that, in reality, when LME trading resumes there will likely be a number of players (liquidity providers) who would traditionally be happy to sell naked, on the assumption they could easily exit or rollover down the track, but might now be rather hesitant to do so (or to do as much, size-wise) for fear of being be caught out and unable to exit themselves prior to contract expiry. That's is, liquidity might continue to be impaired, driven by a degree of short-term fear, not least of which relating to the broader fundamentals surrounding the Russia supply question.
and/or
2) Find (borrow/buy) enough physical Ni that meets LME specification and is also accepted by same. Ship said tonnage to LME-accredited warehouses post haste such that TS/BS is now 'covered' and can let the open contracts (with various contract expiry profiles) expire. He would then able to deliver those physicals in a timely manner, thus fulfilling his obligations.
The sticking points to this plan are:
a) Finding enough tonnage to borrow at short notice; and/or
b) Finding enough tonnage to purchase at short notice... and not having to pay prices that make Tuesday's price action look like a walk in the park.
c) Shipping either of a) or b), if successful, in a timely manner.
Either of the first two point would require state intervention/assistance, imo.
and/or
3) Natural market forces act and Ni prices soften below these heady levels. With the TS/BS maintenance margin now back in the black again, it buys him some time. He'll still have most of his mountain of naked short contracts (with various expiry dates) which cannot be ignored, though. And everyone will know about it. This would be the band-aid-over-the-volcano solution that would act like a giant dark cloud over the market, potentially creating fear that it could re-erupt at any point in the near future.
I have assumed that the Russia supply issue remains an issue for at least the balance of this year. Short of some kind of sudden regime change I can't see Putin backing down anytime soon. That will mean the Ruskies will occupy Ukraine and the west won't have a reason (excuse) to ease-up on the sanctions. Yes, Putin is likely to negotiate with China as an alternative buyer for his Ni, et al, and he's likely to have some success on that, but that has its limits, imo. I doubt China would agree to on-sell as Russia's agent to the rest of the world. That would be too obvious and provocative.
There might be another way, but I don't even know if it's a option that's within the remit of the LME to invoke:
Make delivery of physical at expiry optional. Allow temporary cash settlements. An emergency circuit-breaker mechanism. TS would be forced to crystallise its losses and be on its way, hopefully banned from future participation on the LME.
There are plenty of international futures contracts that do not involve physical delivery at settlement because there is nothing physical to deliver (eg: all financial futures products). This radical approach for a 'physical' futures market would provide some kind of resetting mechanism in the near-term and allow the exchange to get back to its normal business reasonably quickly. However, it would present it's own set of challenges and, like I said, I don't even know whether it's something the LME has the power to do or whether it's even doable within the current LME framework.
Allowing a single entity/group to hold so many naked short positions relative to the size of the overall exchange isn't a good idea. (NSS.)
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