Eric Onstad

LONDON (Reuters – Despite the chaotic, non-stop trading of nickel at the London Metal Exchange and other obstacles, investors frustrated with the situation have discovered that there is no easy way to move their businesses elsewhere.

Last week, volatility caused by prices that doubled to more than $100,000 per tonne in just hours led to the institution of 145 years suspending activity. Traders were left fuming by a series of technical problems that occurred after trading was resumed last week.

Some pointed out the Shanghai Futures Exchange, which has been able to trade nickel without interruptions, as an alternative benchmark in the chaos.

ShFE would need to make some changes in order to establish global reference prices.

Non-Chinese cannot trade on ShFE. They need to be affiliated with Chinese entities. Traders also noted that there may be differences in language, currency and adjustment for VAT and duty.

Shanghai has many retail speculators of small scale, while the LME is controlled by industrial users, financial institutions, and producers.

“I don’t believe there is a quick fix. Liberum’s head of commodities strategies, Tom Price said that it is a problem.

LME looks to be in serious trouble long term.

LME benchmark nickel contracts fell to $41,945 per tonne Thursday. This was its second consecutive daily low.

According to traders, it will likely continue to decline until it equals the Chinese metal’s price of $34,300/tonne.

According to one LME trader, European industrial users are not flocking towards Shanghai.

He said that while he doesn’t think any physical players will price ShFE for their services, including the Chinese, but that the LME must get its house in order long-term.

LME has called the last week’s circumstances “unprecedented.”

A spokesperson stated that they fully recognize the need to take action to stop such an event from ever happening again. “We will review carefully all future appropriate steps that we could take in order to increase market resilience.”

ShFE could not be reached immediately for comment.

Price indicated that in order to restore normal trading on the LME nickel contract, some physical buyers from local areas may have to fix their operations to reflect the reported exchange prices before disruption.

CHINA PRICING POWER

Long-term, China, the largest consumer of commodities and the biggest producer, will want to play a larger role in setting global prices.

Duan Shaofu from China Nonferrous Metals Industry Association stated that the nickel futures scandal “underlines the urgency and importance of promoting internationalisation relevant nonferrous metals futures.”

He stated in an article that the group posted online on Thursday, “The establishment of Chinese-based international bases metals contracts will strengthen China’s commodity price power.”

The Shanghai International Energy Exchange (INE) launched a new contract in 2020 that was open for foreign traders. https://reut.rs/3D4xbuF

CME OPPORTUNITY

CME Group Inc, NASDAQ:), is another possibility. They are launching a nickel-related contract along with their successful copper futures.

CME refused to comment.

Although the company has signed agreements in lead, zinc, aluminium and zinc, it is yet to see any significant momentum.

The CME Copper contract performs well because it has a monthly settlement date that is familiar to hedge funds and other speculators, who frequently use the metal to proxy the global economy.

LME complex contracts allow traders to trade any day during the first three months. These LME contracts were created to enable miners and industrial customers to protect their physical shipments over odd times.

Hong Kong Exchanges and Clearing Ltd. owns the LME’s physical foundation, making it hard to remove the exchange from setting international benchmarks, even with the existing ructions.

According to a London-based Chinese source, “I don’t believe the LME can be replaced easily.” Although I know that many people feel disappointed and anger, there is still some logic to the LME.