LME Revises Nickel Trading Limits Following Volatile Market Conditions

The LME gave no reason for the increase in limits, but it said it would review whether the daily price limits were appropriate and might, subject to prevailing market conditions, adjust them.

“Pending continued assessment, the LME expects that nickel price limits will normalize at the same 15% level as applies to all other base metals,” the LME said.

It had said in an earlier statement that it was evaluating whether it had the ability to further expand the nickel daily price limit for March 17 to "further help the market discover the true market price level," saying this would allow "resumption of prices in a fewer number of days, while ensuring that transactions continue to remain orderly."

There were some teething problems with the transition to the higher limit, with a LME spokesperson telling S&P Global Commodity Insights that some of the increased nickel orders could not be entered during the preopen period in LMEselect from 0730-0800 GMT. To ensure a fair time priority of orders, the LME decided to extend the period from 0815-0845 GMT, delaying nickel trading on LMEselect to start at 0845 GMT instead of 0800 GMT.

“Currently, all venues are operating normally,” said the spokesman.

The LME three-month nickel prices were traded last, according to live data pulled up, at $41,945/mt at 0846 GMT, which was already at the new 8% daily limit. The last price was $45,590/mt on March 16, 5% lower than the March 7 close, according to figures on the LME website.

The increase in the daily ceiling comes as nickel trading resumed at 0800 GMT March 16 after it was suspended at 0815 GMT March 8.

The restart wasn't a smooth one, though, as the LME was forced to suspend nickel trading once more for a few minutes due to a systems error which permitted a very small quantity of trades to occur below its new daily price limit of 5% on its LMEselect electronic market.

It pointed out that as soon as trading was restarted at 0800 on March 16, the three-month nickel price sank 5% on LMEselect, triggering the halt.

Trading resumed at 1400 GMT on March 16 and operated normally for the rest of the day.

The exchange confirmed later in the day that it would not publish a closing price for nickel because the nickel closing prices had traded down to the preset 5% daily price limit on LMEselect, constituting what it called a "disruption event."

This meant it would not publish closing prices, as users did not want closing prices they could not trade, the LME said, in line with wider industry discussions and a prior announcement.

“A natural consequence of the setting of the daily price limits, which has been previously discussed with the market, is a limitation for the LME to value carries where the outright legs have hit their limits,” the LME said.

It cited an example in which the cash and three-month nickel prices were both limited to a 5% daily limit to the downside, which would limit the value of the cash to three-month nickel carry, even where the carry had traded at wider levels during the day, which was "a direct result of the LME's date structure."

The LME three-March spot nickel price achieved an all-time peak of $101,365/mt in early trading March 8, after closing at $48,078/mt March 7. As of 0815 GMT March 8, when the suspension went into effect, it had fallen back to $80,000/mt.

The LME said late on March 14 that the suspension had occurred "against the backdrop of widely reported large short positions [which had originated mainly from the OTC market], combined with geopolitical news-flow and a background environment of low metal stocks."

The LME then worked with stakeholders to assess market conditions and the conditions under which it might resume trading.