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LONDON (Reuters) – CME Group (NASDAQ:CME) plans to launch a nickel contract, settled with prices gathered from a platform to be launched by UK-based Global Commodities Holdings (GCH), which could eventually compete with the London Metal Exchange, three sources with knowledge said.
For years, LME nickel prices were used as a global reference by producers and consumers using the metal as an ingredient for the stainless steel and electric vehicle battery industries.
But after a trading fiasco last March, which saw prices double to over $100,000 per tonne in a matter of hours, many frustrated consumers, producers and traders are avoiding LME nickel and seeking alternative ways to price their contracts.
If an alternative gains traction, the LME will struggle further in its bid to rebuild nickel volumes and liquidity, which have sunk since last March – ending hopes of reviving the authority of its contract.
“CME has been talking to GCH about this project for some months. CME want a nickel contract, they are planning to base it on traded prices on GCH’s physical platform,” one of the sources with direct knowledge of the matter said.
“The LME’s nickel contract is still dysfunctional, volumes are falling. Prices are all over the place.”
In response to a request for comment, CME said: “We cannot comment on whether we are developing any particular product.”
GCH declined to comment on the CME’s plans, but said its nickel platform where buyers and sellers trade directly with each other would be live by the end of March.
Prices from the new platform would be used to create an index, which the sources said would be used to settle CME futures.
Average daily LME nickel volumes have crashed since March last year, dropping 45% in December from a year earlier, following year-on-year losses of 51%, 54% and 40% in November, October and September respectively.
Nickel industry sources said illiquidity meant LME nickel prices often did not represent the fundamentals of the market.
GCH’s platform will be open only to consumers, producers and merchants that are directly involved in the physical market.
The platform will not be available to funds that are not involved in the physical market or algorithmic traders because they are speculators.
“When CME launches a contract based on the GCH platform, funds and anybody else who wants to hedge or trade have another international alternative,” the second source with knowledge of the matter said.
“There aren’t really any alternatives to the LME contract at the moment and the market needs a liquid contract. ShFE (Shanghai Futures Exchange) has a nickel contract, but it’s not easy to use.”
Using ShFE’s nickel contract is difficult for non-Chinese firms as they need to be affiliated with a local entity and because it is priced in yuan.
Last year, according to sources, CME talked to nickel market participants about the potential for a cash-settled contract for nickel sulphate, an intermediate product for the chemicals used in electric vehicle batteries.
CME declined to comment on its plans for a nickel sulphate contract.
