LME Nickel trading suspended, volumes down, SHFE follows, new challengers.
The London Metal Exchange (LME) has been a go-to nickel price point for 146 years. However, LME nickel trading was suspended in March of 2022, leading to a significant drop in volumes. All of the LME’s main contracts recorded drops in volume, with copper being the most resilient with a year-over-year volume decline of under 2%. China’s SHFE has also suffered a collapse in volumes due to the country being in rolling lockdowns throughout 2022. The SHFE nickel contract collapse closely aligned with the LME nickel March meltdown.
The high pricing, high margins required by the exchanges in the face of considerable volatility, and a high level of uncertainty all played a role in dissuading participants on the LME. Meanwhile, options seemed to benefit where deliverable contracts lost out. For instance, the CME’s monthly copper options contract saw a 41% rise in trading activity.
Global Commodities Holdings plans to launch its own nickel price index by the end of the first quarter. This opens the door for a rank outsider like globalCOAL to come in and take market share from the LME. Whether globalCOAL’s trading platform will eventually emerge as the preferred pricing platform remains to be seen.
Nickel prices are in for considerable evolution over the coming years. The biggest question is how much of a role LME Nickel will continue to play in that process. Alternative mechanisms to price nickel outside traditional exchanges are being explored, but price discovery for Class 1 nickel remains crucial for setting the monthly stainless steel surcharge used by mills worldwide. It remains to be seen how the LME will heal its wounds and return to its historic preeminence.