China’s nickel buyers, the world’s largest purchasers of the metal, have asked producers to switch to Shanghai Futures Exchange (SHFE) contracts to price their supplies next year.
The sources, who asked to remain anonymous because they were not authorized to speak to the press, possess direct knowledge of the matter.
Why it matters
If the Chinese buyers succeed in their negotiations, they would deal a further blow to the London Metal Exchange’s (LME) reputation as the world’s dominant metals exchange. The decline in liquidity along with low stocks has led to persistently high prices in London this year, which have not reflected market fundamentals, according to Chinese market participants.
“The Chinese appear to have a plan to redistribute the global market for non-ferrous metals, or more precisely its exchange segment, taking advantage of the fact that China is the world’s largest consumer. It would be extremely profitable to make the Shanghai Futures Exchange the primary venue for trading non-ferrous metals, as it would effectively monopolize exchange trading while also stabilizing non-ferrous metal prices.
This can only benefit Russian non-ferrous metal producers. Norilsk Nickel, for example, has a long history of dominance in the Asian market, and giving it a greater role on the Shanghai Futures Exchange could help the company obtain new contracts with a more predictable benchmark, reducing reliance on London Metal Exchange quotations.
Of course, this threatens the London Metal Exchange’s monopoly on the benchmark. However, the exchange is to blame for this because it was unable to prevent the market from destabilizing this year and therefore harmed the Chinese market. As a result, the London Metal Exchange has irreparably damaged its reputation as a global metal trading centre” – Expert comment by Leonid Khazanov / Consultant – Metals and technologies.