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Chinese nickel buyers seek Shanghai not LME pricing for 2023

China’s nickel buyers, the world’s biggest purchasers of the metal, have asked producers to switch to Shanghai Futures Exchange (SHFE) contracts to price their supplies next year, two sources with direct knowledge of the matter said.

Global trade in metals is typically priced on the basis of London Metals Exchange (LME) contracts, but unprecedented volatility in LME nickel trading in March forced the exchange to halt trade for a period, denting market confidence and reducing liquidity to the lowest level in a decade.

If the Chinese buyers succeed in their negotiations, they would deal a further blow to the LME’s reputation as the world’s dominant metals exchange.

The decline in liquidity, together with low stocks, has led to persistently high prices in London this year, which have not reflected market fundamentals, Chinese market participants say.

Chinese importers of the metal used primarily in stainless steel production suffered heavy losses as a result of the high London prices, said a source at a large trading company in China that is negotiating for 2023 supplies with Russia’s Nornickel GMKN.MM.

The sources asked not to be named because they were not authorised to speak to the press.

A LME spokeswoman did not directly comment on the negotiations but said the exchange was taking steps to increase liquidity.

“The LME recognises the market demand to reopen LME Nickel for trading in Asian hours and we are working on this as a priority, not least since this would revitalise the arbitrage opportunities and help liquidity to pick up,” a spokeswoman for the LME said in an email to Reuters.

Nornickel, the world’s biggest refined nickel producer, is offering a premium of above $300 a tonne for 2023 nickel full plate supplies, up from this year’s premium of between $220 and $290 a tonne, according to three sources.

The premium is traditionally paid on top of LME three-month nickel prices CMCU3 for physical delivery into China.

The source at the large Chinese trading firm said it would cut or cancel purchases if sellers insisted on using LME prices.

Other buyers are making the same demands, another source at a Chinese company said.

Nornickel, the biggest seller, declined to comment on negotiations with Chinese buyers.

A source with direct knowledge of ongoing negotiations said sellers plan to stick with LME prices.

SHFE currently only permits registered Chinese entities to participate in its nickel trade, said Tiger Shi, chief executive at Hong Kong brokerage BANDS Financial Limited, making it less likely that sellers will agree.

LME nickel CMNI3 closed at $29,271 a tonne on Tuesday, down by nearly half from the March high of $55,000, while SHFE nickel SNICv1 traded at 209,510 yuan ($29,994.27) a tonne at 0212 GMT on Wednesday.

The LME is in a legal battle with U.S. hedge funds that are seeking a combined $472 million in damages over its decision to cancel nickel trades in March, after prices spiked more than 50% to hit a record above $100,000 a tonne within a few hours.
Source: Reuters (Reporting by Siyi Liu and Dominique Patton in Beijing; editing by Barbara Lewis)

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