Column: How Shanghai trading is changing the physical nickel market – Andy Home (Reuters U.S.- April 29, 2016)

http://www.reuters.com/

LONDON – Everyone’s talking about Chinese speculators. This year has seen an unprecedented surge of trading volumes and open interest in Chinese markets as institutional and retail investors pour money into commodities.

Both the Shanghai Futures Exchange (ShFE) and the Dalian Exchange are upping margin requirements and transaction fees to try and calm overheating contracts such as steel rebar and iron ore.

The stampede appears to have been halted with both prices and trading activity losing some of their recent froth. But the current trading frenzy shouldn’t distract from the growing global influence of China’s domestic commodity exchanges.

In a market such as nickel the dramatic rise of the ShFE is exerting an increasingly powerful gravitational pull on physical units, causing ripples through the global refined metal supply chain.

UP, UP AND AWAY

The ShFE launched its nickel contract in March last year, since when volumes and open interest have grown dramatically. The contract hasn’t been totally immune from the cross-commodities feeding frenzy of the last few weeks but activity has been on a fast upwards curve ever since the day of launch.

Volumes already regularly exceed those on the London Metal Exchange (LME), which has dominated wholesale nickel trading for many, many years.

In March, for example, the ShFE contract traded around 10.76 million tonnes for nickel, even factoring in Chinese exchanges’ habit of counting both sides of a transaction in their volume figures.

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