Nickel contracts on the London Metal Exchange will resume trading during Asian hours on Monday, a significant step in efforts to repair the market after last year’s unprecedented turmoil.
The exit will finally open at 1am London time, more than a year after the LME suspended trading and canceled billions of dollars of deals in response to a runaway short squeeze centered around top producer Tsingshan Holding Group Co. Prices surged 250% in a little over 24 hours in early March 2022, with the sharpest increase occurring during the Asian Day. The market reopened a week later, but only from 8am in London.
The LME had originally planned to resume Asian trading a week earlier, but delayed the resumption due to volatility risks following the discovery that a small number of bagged cargoes in its warehouse network contained nickel. Instead there were stones. The LME said on Thursday that no further problems were found during a global audit of nickel stored elsewhere in its warehousing network.
The LME is hoping the extended hours will boost trading volume by easing arbitrage between London and Shanghai contracts. Activity in the nickel market has remained well below pre-crisis levels, and a lack of liquidity has contributed to occasional large price swings.
Real-world metals buyers and sellers use the LME contract as a pricing benchmark, and also take positions on the exchange for hedging, meaning that the wider industry depends on the LME market to function properly.
Nickel contracts also face a more fundamental challenge, as the refined forms of the metal traded on exchanges account for a small and shrinking percentage of the world’s total nickel production. As a result, the relationship between LME pricing and the materials actually being bought and sold to make stainless steel or electric-vehicle batteries has become increasingly strained.
However, Tsingshan – which produces large quantities of semi-refined nickel – is now building a plant in Indonesia to make finished metal that can be delivered on the LME, which should allow it to avoid getting caught in future squeezes. can help. If refined nickel produced by Tsingshan and other Chinese companies gets listed for delivery on the LME, it could also help revive trading in the beleaguered nickel market.
In the run-up to the Asian-day reopening, some traders expressed skepticism whether it would actually provide a significant boost to volumes, as trading in the rival Shanghai nickel market has also been affected since the crisis. The two markets have diverged sharply over the past year.
The LME has made several changes to its rules since the crisis last March, including the introduction of a daily price cap.
