The chief of the London Metal Exchange said that it must “justify continued faith” in the marketplace after its controversial decision to freeze and cancel nickel trades during a short squeeze in March.
Matthew Chamberlain defended the exchange’s decision to cancel billions of dollars worth of nickel trades, even as he acknowledged the pain felt by investors in the market.
“In terms of the events of March, the reams of coverage, opinion and speculation served primarily to illustrate the complexity of the situation,” the LME chief executive said at the exchange’s annual dinner in London.
“For every contract negotiation taking place this week where we are sufficiently privileged for the LME nickel price to be referenced, there is an obligation on the LME to justify this continued faith placed in the market.”
Nickel prices surged in March on fears of supply disruption from Russia, one of the world’s largest producers of the metal, which is used to make stainless steel and electric car batteries. The meteoric rise was further fuelled by a short squeeze as banks and brokers rushed to close part of a large position held by Tsingshan Holding Group, one of the world’s largest nickel producers.
The short squeeze risked causing damaging losses for the Chinese group, which produces large quantities of lower-purity nickel in Indonesia that cannot be delivered against the LME nickel contract, and its lenders including JPMorgan. The market turmoil threatened to trigger a systemic crisis.
The LME, which is owned by Hong Kong Exchanges and Clearing, is under pressure for suspending trading and cancelling trades from financial investors. Hedge fund Elliott Management and market maker Jane Street have launched a lawsuit against the LME, claiming damages totalling almost $500mn.
Chamberlain acknowledged that “the process of rebuilding confidence is a long one and itself involves many trade-offs”.
During the FT Mining Summit last week, Jason Kluk, head of nickel at Glencore, one of the world’s largest producers and traders of the metal, said: “What’s clear is that the LME has put up their hand and admitted that they didn’t have the controls in place that they needed and they got themselves into a position that could have been avoided.”
An independent review of the LME’s actions in March is being undertaken by consultants Oliver Wyman with a report due by the end of the year.
