Exclusive-Shanghai exchange exploring potential LME nickel rival

By Siyi Liu, Pratima Desai and Julian Luk

BEIJING/LONDON (Reuters) -The Shanghai Futures Exchange (ShFE) is looking into the possible launch of nickel futures for international use, a potential challenge to the London Metal Exchange’s (LME) contract, five sources with knowledge of the matter told Reuters.

One of the sources said ShFE has been studying the structure of the nickel market and supply and demand at the instigation of industry participants looking for alternatives.

LME prices have been used as a global benchmark by commodity traders, producers and consumers using nickel to manufacture stainless steel and, more recently, electric vehicle batteries.

But market confidence was shaken by a trading debacle in March 2022 that rocketed nickel to a record above $100,000 a metric ton, leading many users to abandon the LME. The exchange suspended trade for more than a week and cancelled all trades on March 8, for which it is being sued.

Average daily LME nickel volumes plunged because of the crisis. While trading has since improved, volumes are still down by almost half since January last year.

To give international firms access, ShFE would launch the nickel contracts on its International Energy Exchange (INE), the sources said, where commodities such as copper, crude oil and rubber are traded in yuan.

ShFE is currently consulting with the industry. No final decisions have been taken on when a nickel future could launch on the INE or what the contract specification might be, the sources said.

However, two of the sources said ShFE was looking at nickel briquette, pressed metal powder, as a material that could be delivered against any new INE contract. Nickel briquette, cathode and pellet are deliverable against the LME’s contract.

CME Group is also looking to launch a nickel contract that would settle against prices gathered from a platform to be launched by British-based Global Commodities Holdings (GCH).

CME did not respond to a request for an update on its plans for a nickel contract.

“The platform and systems are all in place and ready to go,” GCH said. “Final stage now is further onboarding of members which involves KYC (know your client) checks.”

In Singapore, Abaxx, a new commodities exchange is aiming to launch a nickel sulphate contract, the world’s first for a type of nickel used to make the lithium-ion rechargeable batteries that power electric vehicles.

ShFE’s INE launched a physically deliverable copper contract in 2020, an attempt to allow the domestic market to exert more influence over prices of the metal used in the power and construction industries.

But liquidity of the INE copper contract is low and to boost volumes and liquidity, warehouse stocks are needed. Reuters reported in July that ShFE is aiming to expand its warehousing network outside China.

(Reporting by Pratima Desai, Siyi Liu and Julian Luk; Editing by Veronica Brown and Alexander Smith)