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LME
BusinessBanking & Finance

LME’s nickel rout: the world’s metals trading hub grapples for its mojo after unprecedented trading snafu

  • Some traders are questioning whether the Shanghai Futures Exchange or the CME should play a bigger role in metals market
  • Suspension of nickel trading, slow return of market following a short squeeze has raised concerns about LME’s approach to the nickel price crisis

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Illustration by Lau Ka-kuen
Chad Brayin London
The London Metal Exchange (LME) is hobbling back to normalcy more than three weeks after an unprecedented suspension disrupted the trading of nickel contracts, rising questions about the viability of the century-old market place.
Owned by Hong Kong’s stock exchange operator since 2012, the LME was raked over the coals for its March 8 decision to cancel transactions after it halted nickel trading. A 250-per cent price surge in just over 24 hours imperilled dozens of short sellers, the biggest being the world’s largest stainless steel producer Tsingshan Holding Group with a paper loss estimated by Bloomberg at US$3 billion.

Electronic trading, which resumed a week later after Tsingshan secured bank credit to honour its margin calls, stopped as soon as it started on March 16 due to a software glitch. Another glitch the next day delayed trading by 45 minutes, with various price limits put in, before contract orders started trickling in.

Nickel contracts now change hands at a fraction of their daily average volume over the past year, raising the question whether the LME – with its quaint rituals – is still reliable in setting the prices of metals such as aluminium, copper, nickel and zinc. Mainland China, the biggest worldwide consumer of industrial metals, is already offering a trading venue in Shanghai.

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“They put themselves in a situation where they had a choice between several very, very bad decisions,” said Mark Thompson, a veteran trader and the executive vice-chairman of the mining development firm Tungsten West. “They took the worst of those bad decisions in cancelling trades, which effectively sounded the death knell for the LME. People have just given up on the LME, and I think this is going to continue.”

The nickel rout, three months shy of the 10th anniversary of the HKEX’s takeover of LME, has tarnished the years-long effort by chief executive Matthew Chamberlain to modernise the 145-year-old metals exchange and stave off such competitors as the CME Group in Chicago and the Shanghai Futures Exchange. LME transactions have fallen for three straight years, shrinking 6.4 per cent in 2021.
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