How rare is the 100% spike in global nickel price? Think hell freezing over!

The eye-popping surge in global nickel prices on March 8 has left the international community baffled. Prices of nickel, known for its use in several green technologies, surged more than 100 percent to over $100,000 per tonne in Asian trading after an over 60 percent move on March 7.

The move is likely to be a function of a massive short-covering by traders who were holding bearish positions on the commodity as prices surged dogged by the fears of supplies being hit by sanctions on the Russian economy for its assault on Ukraine.

According to Bloomberg, the short positions were held by Xiang Guangda, owner of one of the world’s largest nickel producers known for his hedges to protect his production against a fall in the price of the commodity. Off late, though, a mystery trader had been stockpiling close to 50 percent of the inventory at the London Metal Exchange.

With prices hitting a decade high recently, short positions have been covered aggressively in international markets as concerns of tight supply conditions exacerbate amid high demand from electric vehicle makers.

That said, traders suggested that the 100 percent upper circuit move on international nickel prices today had a volatility of more than 42 standard deviations. A standard deviation measures dispersion in a set of values away from the mean value. The farther the dispersion the rarer the event.

In a paper in 2008, Kevin Dowd, John Cotter, Chris Humphrey, and Margaret Woods dug into determine how rare such sigma events are. Back in 2008, 25-sigma events had become a common occurrence in the global market as the world’s financial system went into a meltdown following the bankruptcy of investment bank Lehman Brothers.

A 2-sigma event, Dowd, Cotter, Chris, and Woods had calculated, was equivalent to an event occurring once every 44 days. A five-sigma, or five standard deviation event, occurs once every 13,932 years.

A six-sigma event, also known as a Black Swan in investment circles, occurs once in every 4 million years. Said in another way, the chance of a black swan event of happening is just one day in the “entire period since our species, Homo Sapiens, evolved from earlier primates”, the paper said.

Pushing the button further, the authors found that the chance of a nine-sigma event is basically one day in the entire history since the universe we live and breathe in existed. “To put this into perspective, this is a period (considerably) longer than the entire period that has elapsed since Big Bang,” the paper said.

If the average reader’s mind is not blown over by these cosmological level numbers, the paper further explored how rare is a 25-sigma event or an event that is 25 standard deviations away from the mean value.

To provide a little context, the research dwelled so deep because Goldman Sachs Chief Financial Officer David Viniar in a famous interview in the middle of the global financial crisis claimed that his bank was suffering through multiple 25-sigma events in a very short period.

A 25-sigma event is equivalent to winning a 2.5 million pound sterling lottery in the UK with a 1 pound sterling ticket 21 or 22 times in a row. The probability of winning it once is merely 0.0000004.

“We suspect, on the other hand, that the estimate of a 25-sigma event being on a par with Hell freezing over is probably about right,” the authors said.

If that is the barometer, then perhaps what occurred on March 8 in the international nickel market is probably equivalent to hell freezing over several times only to realize that hell was the heaven mankind was searching for.