BHP Group has called for reform of the London Metal Exchange’s (LME) nickel contract, saying it no longer represents the physical market.
“The LME’s metal delivery rules is long overdue. The LME short squeeze episode highlighted vulnerabilities that had been building for years. In 2010, 57% of nickel production was eligible for LME delivery. That figure is now below 30% and on current supply projections, it will only fall further.”— Dr Huw McKay, Vice President, Market Analysis & Economics
The tension, BHP says, is that the benchmark price set in the exchange has become removed from the physical clearing market in China. The example provided by BHP is the collapse of metals dissolution economics in China, where nickel Class I supply is tight but intermediate stocks for nickel sulphate are over-supplied.
The LME, to Reuters, has said it “recognises the structural shift in the nickel market” and added: “We are committed to working with the industry to ensure that the LME’s offering meets the industry’s evolving pricing and risk management needs.”
Our latest report highlights how the supply of nickel Class I, essential for electric batteries, is expected to face a shortage for the next 3-5 years, despite increased production by Chinese nickel giant, Tsingshan.