(Boursier.com) — The London Metal Exchange has lost its benchmark status in the global nickel market since last year’s ‘short squeeze’. It is Eramet, one of the largest producers who says so… Christel Bories, general manager of the mining group, thus affirms to ‘Bloomberg’ that an index produced by the Shanghai Metals Market “has become the reference” for the pricing of ferronickel, a form used to manufacture stainless steel. Eramet is the world’s second largest producer of ferronickel.
Prices for different forms of nickel have diverged sharply since last year’s crisis. While the LME contract has always been the benchmark price for the global nickel industry, only about 25% of production is in the form of pure metal deliverable on the exchange, the agency explains. The rest comes in the form of intermediate products – such as ferronickel – which are used directly by the steel and battery industries. “There is a growing disconnect between market fundamentals and the product physically stored in the LME warehouses,” said the manager. “The problem with the LME is that it fixes the price of pure ore. Meanwhile, nickel is used less and less as a pure metal.”
Ferronickel accounts for just over 10% of global nickel production. The nickel pig iron and nickel sulphate markets, which together account for 60% or more of global production, are also using more indices rather than the LME as a benchmark, according to Bories. This change is a real headache for producers and consumers because the price of the products they buy and sell becomes disconnected from that of the LME. The latter has developed an action plan to restore confidence in its market, which includes the launch of a new platform for trading non-pure forms of nickel.
The loss of importance of its nickel contract is one of many problems facing the LME following the crisis last March, when the exchange reacted to soaring prices by suspending trades and canceling billions of dollars in trade, details the agency. The LME is also the target of legal action by hedge fund Elliott Investment Management and trading firm Jane Street, as well as an investigation by Britain’s Financial Conduct Authority.
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