After last year s unprecedented turmoil, the London Metal Exchange nickel contracts will resume during Asian hours on Monday, a crucial step in a bid to repair the market.
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A year after the LME suspended trading and canceled billions of dollars worth of deals in response to a short squeeze centered around top producer Tsingshan Holding Group Co, the price of nickel will surge 250% in a little over 24 hours in early March 2022, with the biggest spike taking place during the Asian day. The market was reopened a week later, but only from 8 a.m. in London.
The LME originally planned to resume Asian trading a week ago, but delayed the restart due to the risk of volatility after it discovered that a small number of bagged cargoes in its warehouse network contained stones instead of nickel. The LME said on Thursday that no more issues were identified during a global audit of nickel stored elsewhere in its warehousing network.
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The LME hopes that the expanded hours will increase trading volumes by making it easier to arbitrage between London and Shanghai contracts. The lack of liquidity has resulted in occasional wild price swings, and the activity in the nickel market has remained well below pre-crisis levels.
The LME contract is used by the buyers and sellers of real-world metal as a pricing benchmark and also takes positions on the exchange to hedge, which means that the wider industry relies on the LME market functioning properly.
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The nickel contract faces a more fundamental challenge, as the refined form of metal traded on the exchange accounts for a small and shrinking portion of the world's total nickel production. The links between LME pricing and the material that is actually being sold to make stainless steel or electric-vehicle batteries have become increasingly strained.
Tsingshan, which produces large amounts of semi-refined nickel, is building a plant in Indonesia to make finished metal that could be delivered on the LME, which could help it avoid getting caught in future squeezes. If the refined nickel produced by Tsingshan and other Chinese companies gets listed for delivery on the LME, it could help to revive trading in the struggling nickel market.
Some traders expressed doubts about whether it would deliver a significant boost to volumes in the run-up to the Asian-day reopening, as trading in the rival Shanghai nickel market has been hammered since the crisis. The two markets have become increasingly disconnected over the past year.
Since the crisis last March, the LME has made a number of changes to its rules, including imposing daily price limits.
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