(Bloomberg) — The London Metal Exchange suspended electronic trading in nickel minutes after resuming, citing a technical problem with the new daily limit as prices fell as the market reopened after a week-long halt.
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Trading briefly resumed at 8:00 am and nickel futures immediately fell in the 5 percent daily window before the market was suspended again. The exchange said it has suspended e-commerce to investigate the issue and will reverse a “small number” of transactions. Phone trading remains open and brokers on the open floor, known as The Ring, will also trade in nickel later today.
The drop in prices is a sign that last week’s historic short squeeze is easing. This narrows the gap between the LME nickel contracts and the Shanghai Futures Exchange, which continued to trade during the suspension. The historic decision to stop trading came last Tuesday after soaring prices forced some brokers to pay huge margin calls against bearish positions held by top producer Tsingshan Group Holding Co.
But the forced shutdown is an unfortunate setback for the 145-year-old exchange, which is the world’s premier price-setting and trading venue for some of the world’s most important industrial metals. The LME had already faced harsh criticism ahead of Wednesday’s fiasco, after deciding to suspend the nickel market and cancel several hours of trading when a short squeeze caused a massive price spike last week.
“What a fiasco,” said Ole Hansen, head of commodity strategy at Saxo Bank A/s. “The LME is not doing itself any favors.”
E-commerce issues may eventually breathe new life into the LME’s open marketplace, which has waned in importance in recent years. The LME tried to close the ring last year but canceled the plan after backlash from some of its members.
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“This is the time when the Ring really earned its fame as a place to get true prices,” Colin Hamilton, managing director of commodity research at BMO Capital Markets, said by phone from London.
The LME has announced that it will reopen the nickel market this week after Tsingshan entered into an agreement to suspend production with its banks. Commodities markets were hit by a sell-off after the LME suspended trading to cushion an unprecedented rally that it said posed a systemic threat to its market, although other metals rebounded slightly on Wednesday.
Most of the analysts and traders polled by Bloomberg on Tuesday predicted that prices would fall by a new stock limit when the market reopens.
Only 206 lots, or 1,236 tons of nickel, changed hands before the market stopped trading for a few seconds on Wednesday morning. Most of these transactions took place at a cap price of $45,590 per tonne. Several transactions were at prices below the 5% limit.
More than 8,600 contracts, or 51,600 tons of nickel, were listed for sale on the electronic order book at market open, compared to 3 contracts to trade.
“In a way, everything went as expected, in the sense that we all expected it to fall, but it was just a matter of how fast,” Hamilton said.
Shanghai Futures Exchange contracts closed up 8.6% to 235,200 yuan ($37,048) a ton, but remained below LME prices until the London market opened.
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