LONDON – The London Metal Exchange (LME) on Thursday announced measures to revive its nickel contract after last year's trading chaos while also launching a consultation on moves to boost liquidity in electronic trading.
The world's largest and oldest metals trading venue plans to work with China's Qianhai Mercantile Exchange, also owned by Hong Kong Exchange and Clearing, to launch a new, lower-grade nickel contract.
A disconnect between the high-grade nickel linked to the LME nickel contract and surging production of lower-grade metal was a key driver of the chaotic price action in March last year, which forced the LME to annul nickel trades and suspend trading for the first time since 1988.
The exchange also plans to make permanent the price limits imposed on all metals after last year's nickel swings, though it will tighten the caps on main metals copper and aluminium to 12% from 15%.
The LME released its "action plan" in response to January's report by management consultants Oliver Wyman, which advised the LME on how to prevent market distortions and improve risk monitoring.
"The LME is committed to rebuilding liquidity in LME nickel and, alongside reopening Asian hours nickel trading earlier this week, is today introducing a fast-track listing approach and fee waiver for new LME nickel brands," its statement said.
The March 8 nickel trading suspension occurred after prices doubled to more than $100 000/t in a matter of hours in a surge sources blamed on short-covering by one of the world's top producers.
The recommendations build on measures the LME took shortly after the crisis, including 15% daily price limits and over the counter (OTC) position reporting for all physically delivered metals.
The introduction of a "class 2" nickel spot market in China is because only about 21% of global production, about 650 000 t, can be delivered against the LME nickel high-grade contract.
Britain's Financial Conduct Authority this month launched its first investigation of a UK exchange for possible misconduct regarding the LME's decision last year to halt nickel trading.
The move has prompted investor lawsuits while the nickel contract remains broken, with volumes sliding and the industry left without an effective global reference price.