LME Nickel Finally Returns to Regular Trading Hours After Crisis

Nickel on the London Metal Exchange resumed Asian-hours trading on Monday, marking a crucial step in efforts to repair the market after last year’s unprecedented turmoil.

(Bloomberg) — Nickel on the London Metal Exchange resumed Asian-hours trading on Monday, marking a crucial step in efforts to repair the market after last year’s unprecedented turmoil.

The metal opened for business at 1 a.m. London time, more than a year after the LME suspended trading and canceled billions of dollars worth 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 spike taking place during the Asian day. The market reopened a week later, but only from 8 a.m. in London. 

The LME had originally planned to resume Asian trading a week ago, but delayed the restart due to the risk of volatility after its discovery that a small number of bagged cargoes in its warehouse network contained stones instead of nickel. The LME said on Thursday that no further issues were identified during a global audit of nickel stored elsewhere in its warehousing network.

Read: JPMorgan’s Missing Nickel: The Hunt for Clues Begins With a Kick

The LME is hoping that the expanded hours will boost trading volumes, by making it easier to arbitrage between London and Shanghai contracts. Activity in the nickel market has remained well below pre-crisis levels, and the lack of liquidity has contributed to occasional wild price swings. 

Quiet Trading

“The volume won’t be coming back quickly,” Gao Yin, an analyst with Horizon Insights, said by phone. The liquidity issues exposed by last year’s short squeeze are yet to be resolved, and investors still lack trust in the nickel contract.

Early trading activity on Monday was muted, with contracts worth 366 tons traded by 6:30 a.m. London time, compared with average daily trading volume this year of about 214,000 tons. Prices fell as much as 3.3% in the overnight session, before rebounding to trade 1.3% higher at $23,780 a ton as of 11:58 a.m. London time. 

Buyers and sellers of real-world metal use the LME contract as a pricing benchmark, and also take positions on the exchange to hedge. That means the wider industry relies on the LME market functioning properly.

Read: One Year Later, LME Nickel Trading Remains Crippled by Crisis

The nickel contract also faces a more fundamental challenge, as the refined form of metal that’s traded on the exchange accounts for a small and shrinking percentage of the world’s total nickel production. As a result, the links between LME pricing and the material actually being bought and sold to make stainless steel or electric-vehicle batteries have become increasingly strained.

Worst Performer

However, Tsingshan — which produces vast amounts of semi-refined nickel — is now building a plant in Indonesia to make finished metal that could be delivered on the LME, which could help it avoid getting caught out in future squeezes. If the refined nickel produced by Tsingshan and other Chinese companies gets listed for delivery on the LME, it could also help to revive trading in the struggling nickel market. 

Nickel is the worst-performing contract on the LME so far this year, with a decline of more than 21%. Other metals were mixed on Monday, with copper declining 0.6%, while tin climbed 2.4%. 

In the run-up to the Asian-day reopening, some traders expressed doubts about whether it would really deliver a significant boost to volumes, as trading in the rival Shanghai nickel market has been hammered since the crisis too. The two markets have also become increasingly disconnected over the past year.

The LME has made a number of changes to its rules since the crisis last March, including imposing daily price limits. 

–With assistance from Winnie Zhu and Alfred Cang.

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