FOCUS: Nickel stock shock prompts further calls for transparency

The connection between physical demand fundamentals and futures price action has broken, say market participants, pointing to nickel stocks on the London Metal Exchange at an 11-year low and the benchmark cash/three-month spread in a backwardation of over $160 per tonne.

There have been unprecedented daily drawdowns of LME nickel stocks, which are at their lowest since 2008 at 102,696 tonnes on Thursday October 10, at a time when physical market demand remains suppressed yet the LME three-month nickel price remains elevated. LME nickel stocks have dropped sharply by 32.5% from 152,136 tonnes on September 30, the first of nine consecutive days of stock drawdowns, despite a deep and persistent backwardation in the cash/three-month nickel spread. The benchmark cash/three-month spread was recently trading at a $162.50 per tonne backwardation. In a typical market cycle, a wide backwardation would be expected to attract material back onto exchange. This is because a backwardation makes it more expensive for some participants to carry stock. “Nickel stocks and spreads are all over the place. The market is completely out of whack and the three-month nickel price is the most volatile out of the complex. Something...

Published

Alice Mason

Amy Hinton

October 10, 2019

16:34 GMT

London