Foreign media reported on October 6th that the consequences of the 2022 collapse of nickel trading on the London Metal Exchange (LME), including potential challenges to its nickel contracts and the fate of the exchange itself, will become a hot topic in the metal industry in London next week.
On March 8th of last year, this 145-year-old exchange faced a crisis, being forced to halt nickel trading for the first time since 1988, when nickel prices more than doubled in a matter of hours, reaching record levels of over $100,000 per ton.
Many users concerned about increased volatility abandoned LME’s nickel contracts and began looking for alternatives, leading to a significant drop in trading volume and liquidity after the trading halt.
So far, there hasn’t been a true replacement. The Shanghai Futures Exchange (ShFE) offers nickel contracts on its domestic exchange, but trading nickel contracts is challenging for foreigners requiring ties to Chinese entities.
However, the Shanghai Futures Exchange is currently exploring the possibility of launching nickel futures in the international market, and the Chicago Mercantile Exchange (CME Group) is studying a contract that will settle prices based on data collected from a platform soon to be launched by Global Commodities Holdings, headquartered in the UK.
A senior industry insider said, “What nickel and other exchanges are doing, how long Matt Chamberlain (CEO) can remain in office, these are all on the agenda.”
Speculation about the Hong Kong Exchanges and Clearing (HKEx) selling LME and its clearinghouse remains widespread, despite the exchange recently stating its commitment to its London branch.
“HKEx has given tremendous support over the past 18 months. I believe we are long-term members of this organization,” Chamberlain told Reuters.
Also of significant interest are lawsuits filed by the U.S. hedge fund Elliott Associates and market maker Jane Street Trading, who acquired LME for $472 million, stemming from the $12 billion nickel trading canceled by LME on March 8, 2022.
In response to requests for comment, the London Metal Exchange stated, “The London Metal Exchange vigorously defended itself in court, emphasizing that its actions on March 8, 2022, prevented significant and systemic damage to the nickel market, as well as other metal markets and the broader derivatives market.”
LME declined to comment on any other market rumors.
Chinese Return
During the lockdowns in 2020 and 2021, the event known as LME Week was virtual. Last year’s conference was held in person, but due to prolonged lockdowns, there were no representatives from China, the world’s largest consumer of industrial metals.
Mark Bailey, CEO of Sucden Financial, said, “We expect the attendance at LME Week to be almost double that of 2022, currently returning to pre-COVID-19 levels.” “This year, we see a lot of interest from Chinese clients who want to meet for the first time in a while.”
The London Metal Exchange (LME) stated that a highlight of this week will be a dinner on October 10th (Tuesday) at the Grosvenor House in Mayfair, attended by 1,600 people, similar to the pre-pandemic numbers in 2019, compared to 1,400 people last year.
Meanwhile, the London Metal Exchange stated that the seminar on October 9th (Monday) attracted 600 delegates, equivalent to the 2019 numbers.
Green Wealth
In terms of fundamentals, discussions will focus on accelerating demand in the coming years as the shift towards electric vehicles and renewable energy sources such as solar and wind is expected to create a rich mining industry.
As European and American demand for metals like copper, nickel, aluminum, and cobalt accelerates, the energy transition is also expected to reduce China’s importance in the metal industry.
Jay Tatum, portfolio manager at Valent Asset Management, said, “When the next economic upturn begins, we may see increased demand for green technology, which currently accounts for 12%-15% of global industrial metal demand and is expected to grow at a rate of 25%-30% in the coming years.”
“This is a tremendous growth rate. Coupled with increasing demand from other industries, it appears that supply and consumption are not aligned.