Recovery path: Traders at the LME. All the LME base metals except tin saw higher exchange stock levels last year, which helps explain the rise in activity across all the core contracts. — Bloomberg
THE London Metal Exchange (LME) has now fully recovered from its near-death nickel crisis in 2022, with trading activity last year the strongest since 2015 and the fourth highest on record.
Average daily volumes at the 148-year-old institution were 664,698 lots in 2024, up by 18.2% from 2023, the LME said.
Nickel volumes jumped by 58.8% and by the end of the year were back at levels seen in 2021 prior to the market meltdown and suspension of trading in March 2022.
Underpinning the recovery has been a steep rise in LME nickel inventory, part of a broader trend of higher exchange stocks, and renewed investor interest in the industrial metals sector.
The tide of fund money also lifted volumes on the Chicago Mercantile Exchange (CME), which has been aggressively expanding its metals portfolio to compete with the LME.
Indeed, the world of metals trading is becoming an ever more contested arena with the Shanghai Futures Exchange (ShFE) looking to expand its international presence and new players offering alternative pricing models.
The LME’s nickel crisis was compounded by low stocks and the lack of physical delivery options available to big short position holders such as China’s Tsingshan Group. The exchange has since approved six new brands of nickel, five from China and one from Indonesia.
LME nickel inventory, both on-warrant and off-warrant, grew to almost 230,000 tonnes at the end of November 2024 from under 40,000 in May 2023.
LME stocks are now much more aligned with nickel market dynamics, which has boosted both confidence and trading volumes.
Nickel is just one component of a bigger turn of the inventory cycle. LME stocks of all metals were 2.2 million tonnes at the end of November, up by 505,000 tonnes at the start of 2024 and more than double the levels seen over much of 2022.
More inventory means more financing and, in the case of aluminium and zinc in particular, more stocks churn as traders arbitrage storage differentials.
All the LME base metals except tin saw higher exchange stock levels last year, which helps explain the rise in activity across all the core contracts.
Tin volumes jumped by 25.9% in 2024 relative to 2023 even though it was the only metal to see exchange stocks decline over the year. That speaks to the other big driver of increased LME activity last year – the return of investors to the base metals markets.
Funds were holding record long positions on the LME tin contract in September, reflecting broader investment interest in the clean-energy metals narrative.
No surprise that copper volumes on the LME and the CME exchanges surged in the first half of 2024 as funds stampeded into a market that was trading at record nominal highs.
Retail investors are also being drawn into metals trading. CME’s micro copper contract, which the exchange said is “tailored to the individual investor”, has seen volumes more than double in both 2023 and 2024.
Although each contract is for just 2,500 pounds of copper, last year’s volumes were equivalent to over 3.3 million tonnes.
However, fund flows in copper peaked with the price and all three major exchanges saw volumes slide over the second part of 2024.
Funds also left the tin market after September with volume growth in the LME contract slowing to just 8.9% in December from over 40% in the second quarter.
Indeed, total LME volumes contracted in December for the first time since March 2023 as a resurgent dollar and a record-breaking US stock market saw metals once again fall off the investor radar. For how long remains to be seen.
The LME can now boast three increasingly liquid steel contracts, although it has lost out to the CME when it comes to battery metals such as cobalt and lithium.
The Shanghai exchange, meanwhile, has fleshed out its core base metals portfolio with new lead, nickel and tin options contracts and an alumina contract that notched up volumes of over 79 million lots in its first full year of trading.
The ShFE has made no secret of its ambition to attract more overseas players and has been looking at international delivery points to achieve benchmark pricing status. — Reuters
Andy Home is a columnist for Reuters. The views expressed here are his own.
