LME nickel finally returns to regular trading hours after crisis

Nickel will finally open again at 1 a.m. London time, more than a year after the LME suspended trading and canceled billions of dollars worth of deals in response to a runaway short squeeze centered around top producer Tsingshan Holding Group Co. Prices surged 250% in a little over 24 hours in early March 2022, with the sharpest spike taking place during the Asian day. The market reopened a week later, but only from 8 a.m. in London. 

The LME had originally planned to resume Asian trading a week ago, but delayed the restart due to the risk of volatility after its discovery that a small number of bagged cargoes in its warehouse network contained stones instead of nickel. The LME said on Thursday that no further issues were identified during a global audit of nickel stored elsewhere in its warehousing network.

The LME is hoping that the expanded hours will boost trading volumes, by making it easier to arbitrage between London and Shanghai contracts. Activity in the nickel market has remained well below pre-crisis levels, and the lack of liquidity has contributed to occasional wild price swings. 

Buyers and sellers of real-world metal use the LME contract as a pricing benchmark, and also take positions on the exchange to hedge, which means the wider industry relies on the LME market functioning properly.

The nickel contract also faces a more fundamental challenge, as the refined form of metal that’s traded on the exchange accounts for a small and shrinking percentage of the world’s total nickel production. As a result, the links between LME pricing and the material actually being bought and sold to make stainless steel or electric-vehicle batteries have become increasingly strained.

However, Tsingshan — which produces vast amounts of semi-refined nickel — is now building a plant in Indonesia to make finished metal that could be delivered on the LME, which could help it avoid getting caught out in future squeezes. If the refined nickel produced by Tsingshan and other Chinese companies gets listed for delivery on the LME, it could also help to revive trading in the struggling nickel market. 

In the run-up to the Asian-day reopening, some traders expressed doubts about whether it would really deliver a significant boost to volumes, as trading in the rival Shanghai nickel market has been hammered since the crisis too. The two markets have also become increasingly disconnected over the past year.

The LME has made a number of changes to its rules since the crisis last March, including imposing daily price limits.