By: Natalie Scott-Gray, Senior Metals Demand Analyst, EMEA and Asia region
On 30th March, the LME released a notice that it had started a two-year programme “of change to strengthen and enhance its markets”, which addresses the recommendations put forward in the Oliver Wyman report (following the events in the nickel market in 2022).
Immediate Actions to Be Taken
• Daily price limits of 15% are made permanent, with indicative revised limits of 12% for copper and aluminium. Please note, the implementation of this methodology will occur at the end of Q2 2023.
• Intention to increase liquidity in the LME nickel contact, via the reopening of Asian hours, in addition to a fast-track listing approach and fee waiver for new LME Nickel brands (without relaxing the LME’s metallurgical or responsible sourcing standards). This holds the aim of bringing more stock and liquidity to the contract. Please note, course nickel powered is being considered a potential deliverable shape.
• Acknowledgement of market concerns regarding levels of margin change against the LME nickel contract. LME Clear will work with key stakeholders to assess the scope for methodology changes (which will also allow an optimal balance between the allocation of risk across the default fund, initial margin and concentration margin), and will seek the required regulatory approvals in due course.
Near-Term Actions to Be Taken
• The LME will finalise its position on the matter for broadening its nickel contract to include course nickel powder by April 2023. This move is taken with the aim of increasing the amount of nickel Class I material eligible for delivery.
• The LME will remain open to introducing Class II nickel contracts to complement LME nickel as “the underlying market evolve”. Please note, the LME will work with its Group affiliate, the Qianhai Mercantile Exchange (QME) to develop a China-based spot market offering for nickel sulphate and nickel matte, which could support these trade flows in Asia.
• An initial consultation is planned for publication during May 2023, which will put forward proposals to make permanent the temporary measures introduced in 2022, in addition to addressing the current low-stock environment. Furthermore, the LME will also propose the introduction of monthly reporting of eligible stock (non-LME warranted metal in LME-licensed warehouses).
• Embed the findings of independent, internal, and regulatory-led reviews to manage risk through enhanced controls.
• Enable the market to provide deep and resilient liquidity for LME participants and members.
• Build confidence in the reliable and transparent operation and governance of the LME Group’s markets
• Evolve market structure, demonstrating the Group’s ability to deliver modernisation and change
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