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When will nickel trading return to normal?

336 31.Mar.2022 KZ Editor

According to the Financial Associated Press, as the financial market entered its last trading day this week, the restart of nickel futures on the London Metal Exchange also entered its third day. After experiencing various oolong events in the first two days of the LME, major traders in the global commodity market have more or less pondered a question: Where else can we trade commodities after leaving London?

Starting from Wednesday, London nickel futures were suspended for a week and then resumed trading. A 5% price limit was set on the first day. However, after the market opened, there were transactions below the limit price, and then the trading was suspended for 8 hours and restarted; the price rose on Thursday. The drop limit was relaxed to 8%, but after the opening of the market, there was a bug that the minimum limit order was automatically rejected by the system, resulting in a delay of 45 minutes for the opening of the electronic market.

According to news last night this morning, the price limit for London Nickel was further eased to 12% on Friday. According to yesterday's closing price of nearly 42,000 US dollars, there is still a price difference of nearly 2,000 US dollars / ton between today's drop limit and Friday's Shanghai Nickel (219620, -1810.00, -0.82%) futures. Lying on the 12% price limit, then the exchange announced that "the trading system has failed for the third consecutive day", and the London market will likely have to wait until next week to restore its normal pricing power.

It is still not easy for foreign investors to participate in "China pricing"

There is no doubt that the main reference for the pricing of global nickel benchmarks in the past two weeks has basically come from the Shanghai Futures Exchange, but there are still many practical thresholds for global investors to move from the LME to Shanghai.

According to brokerage reports quoted by Reuters, non-Chinese entities must not only establish relationships with Chinese entities, but also face different environments such as exchange rates, languages, tariffs, and value-added tax. In addition, unlike the LME market, which is dominated by financial institutions, miners and industrial users, the SHFE also has a large number of small retail speculators.

Although in the short term, domestic exchanges are relatively junior compared to the 145-year-old LME, many domestic industrial giants also prefer to conduct international transactions in London. But in the long run, China is the largest producer and consumer of many commodities, and naturally hopes to have a stronger voice in the global pricing system.

It is worth noting that the Shanghai International Energy Trading Center under the Shanghai Futures Exchange will launch copper futures for international investors for the first time in 2020, and it is possible to expand more international contracts in the future.

CME Group serves different audiences

For the CME Group on the other side of the ocean, although COMEX copper futures are more successful, the market enthusiasm for other contracts such as aluminum, zinc and lead harvests is much less.

The reason is that copper futures, which are usually delivered on a monthly basis, are usually bet by hedge funds and investors as the target of the global economic trend, and have little to do with practical transactions. While the LME contract allows trading on any day for the first three months, this setup is also intended to allow miners and industrial consumers to hedge physical shipments for any period.

This feature of being deeply bound to the physical foundation also makes the international market still consider it an important reason for the difficulty of decoupling from the LME despite the current turmoil.

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