LME still fending off nickel woes

The London Metal Exchange (LME) says it has invalidated nine nickel warrants after the discovery of an off-spec shipment in an LME warehouse. The exchange also has announced a one-week postponement to the return of its Asian nickel trading hours, delaying the retart until Monday, March 27.

In a March 17 notice to members and other interested parties, the LME refers to “reports of cargo irregularities in the broader physical nickel market, and in particular, any possible implications for the LME.”

The notice was issued about the same time Bloomberg News reported bags of what was supposed to be branded nickel stored at an LME-affiliated warehouse in Rotterdam instead contained rocks.

The LME’s notice did not contain details on the nine canceled warrants or any potential fraud. Instead, writes the LME, “The exchange has received information that a number of physical nickel shipments, out of one specific facility of an LME-licensed warehouse operator, have been subject to such irregularities.”

The bizarre incident occurs almost exactly one year after LME nickel contract trading was roiled by an attempt to drive up the nickel price, seemingly in order to catch one or more traders in a short position.

In the most recent incident, LME states, “The warehouse operator has promptly undertaken a full check of warranted nickel at this facility, and has engaged with the LME throughout this process. As a result, the metal underlying a small proportion of nickel warrants at this location (nine warrants in total) has been found to be non-conformant with the contract specifications.”

Those nine warrants, says the LME, have been invalidated, and the exchange says it will “work with the warehouse operator to ensure that the circumstances around this incident are fully established.”

Metals traders have been quoted in media reports as wondering whether or how the stones shipped in lieu of nickel would have weighed the same as LME branded nickel. States the LME regarding that aspect, “The irregularities relate to bagged nickel briquettes, and were evident from, among other things, the weight of the bags. In this context, the LME reminds licensed warehouse operators of the strict requirement to weigh all metal before it is placed on warrant.”

Continues the exchange, “The LME notes that its other metal contracts do not allow bagged delivery, and hence are not susceptible to this type of irregularity.”

The LME says regarding its one-week postponement of the return of Asian hours nickel trading, “The LME will postpone the return to Asian hours nickel trading” in part because “when the [nickel] market opens on Monday, the LME would prefer this to happen during London hours, when liquidity is generally stronger.”

In an early February appearance by LME staff member Joe Vu, the Singapore-based Vu portrayed the Asian trading hours as an overall plus for the LME. The exchange has been owned by Hong Kong Exchange (HKEX) since 2012. HKEX has been working consistently to increase the LME’s presence in Asia subsequently.