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Caution reigns as nickel trading resumes in London

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© Reuters. Traders work on the floor of the London Metal Exchange, in London, Britain September 27, 2018. REUTERS/Simon Dawson
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By Pratima Desai

LONDON (Reuters) – Nickel trading on the London Metal Exchange (LME) resumes on Wednesday a week after it was suspended with limits on price movements to prevent disorderly trading after wild swings triggered a rare market shutdown.

China’s Tsingshan Holding Group bought large amounts of nickel to reverse bets on lower prices, propelling the metal up more than 50% to above $100,000 a tonne on March 8, sources have said, prompting the LME to suspend trading.

Even though the LME has now introduced a 5% limit on nickel price moves, some traders said they remained cautious and would wait to see how things worked out, meaning trading volumes may well be subdued on Wednesday.

Besides suspending nickel trading for only the second time in its 145-year history, the LME also cancelled all trades on March 8 and extended deadlines for those with obligations to deliver physical metal against its contracts.

The price of nickel, which is used to make stainless steel and is a key material for electric vehicle batteries, had been rising steadily even before the conflict in Ukraine ramped prices up even further.

Russia accounts for about 10% of global nickel output and traders were concerned supplies could be constrained by Western sanctions on Moscow.

The daily price limits for LME nickel contracts such as the benchmark three-month future will now be the previous day’s closing price, plus or minus 5%.

While three-month nickel was at about $80,000 a tonne when trading was suspended, the closing price on March 7 was $48,078 which means the trading band on Wednesday will be $45,674 to $50,482.

The LME said on Tuesday it would keep this percentage under review and move to a 15% limit similar to the one it imposed this week on other base metals for the first time as and when the nickel market normalises.

(Graphics: https://fingfx.thomsonreuters.com/gfx/ce/klvykbwrnvg/LMEvsShFENickel.png)

Nickel trading on the Shanghai futures exchange has continued while the LME contract has been suspended. It was trading at around the equivalent of $34,041 a tonne ahead of the LME opening on March 16.

‘SITTING ON THEIR HANDS’

The LME’s electronic trading system will allow orders to be entered from 0730 GMT, with nickel trading starting at 0800 GMT.

The market will remain open even if price limits are reached but any bids above the higher limit or offers below the lower limit will be rejected.

Some traders are not yet convinced by the measures and are unwilling to take risks on behalf of their clients or for themselves, particularly those with smaller balance sheets.

“Commodity markets overall have calmed down, oil is back below $100 a barrel and aluminium has come off $800 a tonne in the last few days, so maybe trade will resume in an orderly fashion,” one metals trader said.

“But how can we know what will happen tomorrow. A lot of people will be sitting on their hands.”

Brent crude hit a 14-year high above $139 a barrel last week and aluminium a record above $4,000 a tonne as worries about Russian supplies ratcheted up.

“The nickel market has been tight for a while and prices have been rising this year,” one metals trader said. “The Russia-Ukraine crisis gave it that extra momentum.”

One of the main reasons nickel trading is resuming is that Tsingshan has reached an agreement with a consortium of banks this week under which they will not make margin calls on, or close out, its nickel positions on the exchange.

“The LME notes … that a large client of the market has now published details relating to the support of a banking consortium, which could suggest that the potential for further disorderly conditions may be mitigated,” the exchange said.

The LME, the world’s oldest and largest market for industrial metals, is owned by Hong Kong Exchanges and Clearing Ltd.

Caution reigns as nickel trading resumes in London

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