CME Group Considers Introducing Nickel Contract, Rival LME

Chicago- based CME Group, the world’s biggest financial derivatives exchange, plans to introduce a nickel contract that would be settled with prices gathered from a platform to be launched by UK-based Global Commodities Holdings (GCH), which could eventually compete with the London Metal Exchange (LME). LME nickel prices have been used as the global benchmark for years. The metal is key for stainless steel and electric vehicle battery industries.

After an LME trading chaos last March, which saw prices double to over $100,000 per ton in a matter of hours, many buyers and sellers of the metal have been avoiding LME nickel and looking for alternative ways to price the contracts.

If an alternative gains traction, the LME will struggle further in its bid to rebuild nickel volumes and liquidity, which have sunk since last March, ending hopes of reviving the authority of its contract.

CME and GCH has been discussing this project for some months, as CME is willing to launch a nickel contract and base it on prices on GCH’s physical platform. The LME nickel contract is still described as dysfunctional, with volumes falling and prices volatile.

GCH said, while not making any comments on CME plans, its nickel platform would be online by the end of March.

Prices from the new platform would be used to create an index, which is expected to be used to settle CME futures.

GCH’s platform will be open only to consumers, producers and merchants that are directly involved in the physical market.

Average daily LME nickel volumes have crashed since March last year, dropping 45% in December from a year earlier, following year-on-year losses of 51%, 54% and 40% in November, October and September respectively.

There aren’t really any alternatives to the LME contract at the moment and the market needs a liquid contract. Shanghai Futures Exchange (ShFE) has a nickel contract, but it’s not easy to use for non-Chinese firms as they need to be affiliated with a local entity and because it is priced in yuan.

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