SHANGHAI, Mar 15 (SMM) - Yesterday, the London Metal Exchange (LME) issued a notice to impose 15% daily price limits for all metals outright contracts except Nickel. Besides, it was confirmed that the LME nickel contract will resume on all LME execution venues at 08:00 London time on Wednesday (16: 00 Beijing time on March 16, 2022).
SMM has received many questions about LME's notice and the trend of the prices, and SMM will hereby give answers.
1. The most important things in the new regulations are the transparency of transactions. LME will monitor the positions of large holders and all OTC positions in Nickel greater than 100 lots, and it can inquire about and limit the positions of large holders at any time (The controllability will be increased along with the strengthened supervision).
2. Increasing the delivery brands will help to solve the problem of insufficient delivery products (other exchanges which have the same problem may need to copy this rule).
3. The application of daily price limits will take effect from 16 March for Nickel. The precise levels of these limits for Nickel will be confirmed by Notice before 14:00 London time on March 15, which will not be less than 5% (different from the 10% previously guided). Concerning trading on LMEselect, in the event that a bid is entered above the higher daily price limit or offer is entered below the lower daily price limit, trading will continue but such order submission will be rejected. This rule limits the occurrence of short-term extreme price moves.
4. The LME confirms the deferral of delivery to Wednesday 23 March at level of all Nickel contracts. For the nickel positions due for delivery between March 16 and March 22, the current method will be used unless delivery is selected, that is, the prices will be the lvl price and the delivery will be postponed by one day every day until the due date is March 23. Delivery deferral provides feasibility for shorts to deliver in a short term.
5. Trading was suspended from March 8 to March 15, and there was no CSP or Closing price. Any business day on which trading is suspended will still be included in the total number of trading days in this month, and the official price on the suspended trading day will be the next business day’s official price for that contract. The monthly average price is still high. The cost of raw materials calculated by the LME average price will still be pushed to a higher level (higher than the domestic price), and the downstream may bear larger losses in the short term.
What about the absolute price?
Nickel prices are still hard to be predicted after the resumption of nickel trading, and the long-short game is still unpredictable.
In the long run, if LME prices continue to rise, all raw materials settled at LME prices or preserved in LME will be unacceptable to downstream, and production in the downstream sector that does not sign sales contract will be reduced or stopped. Besides, it is difficult for the longs who purchase goods to sell at high prices. LME nickel prices will go down with a high probability. After dropping to a reasonable range, it is expected to operate according to the fundamentals, which is similar to the trend of domestic nickel futures in the past week (the fundamentals will support the prices to be strong after falling back to a reasonable range).
The Russia-Ukraine conflict tightens the supply of nickel, aluminium, and crude oil in the world because Russia is a big exporter of these resources. The prices of aluminium and crude oil were falling when the nickel prices continuously hit the daily limit up and were finally suspended trading, which may indicate that the tense Russia-Ukraine conflict is eased to some extent.
