London Metal Exchange probes nickel trading after price fluctuations

• Large amounts of nickel bought and sold on Oct. 14
• Sources say LME looking into trading along maturity curve

LONDON: The London Metal Exchange has asked members to report any unusual activity in nickel trading after prices lurched up and down in the wake of large transactions last week, sources familiar with the matter said.

Sources said the LME sent an email last week asking about reasons for the nickel trading carried out for clients.

Two sources said the LME was aiming to ensure there had been no deliberate attempt to move prices on the afternoon of Oct. 14, when benchmark nickel crashed nearly 5% in a matter of minutes just before the end of open-outcry trading.

"The LME asked members to look at trading that Monday, to make sure there was nothing suspicious, that's their job. It doesn't mean there was foul play," one broking source said.

Data for Oct. 14 shows that 1,260 lots or 7,560 tonnes of nickel were sold for delivery in three months just before 1600 GMT, when floor trading ends.

Over the next hour, the market rebounded as 5,943 lots or 35,658 tonnes of three-month nickel were bought on the LME's electronic trading system Select.

By the close of trading on Select at 1800 GMT, prices of the benchmark contract had recovered all losses.

"We are actively monitoring the nickel market and collecting additional holistic data in respect of member and client activity," the LME said in response to a request for comment.

"While we note that market tightness may be reflective of genuine physical market conditions, we also have clear and robust procedures in place to ensure that any evidence of misconduct will result in disciplinary proceedings."

Sources said the LME was also looking into trading along the maturity curve. Large purchases of the December 2019 nickel contract and sales of December 2020 and December 2021 contracts were also under scrutiny.

Prices of the December 2019 contract rose alongside higher demand.

"Somebody was buying the December-to-December spreads to push prices up," another source said. "The LME was asking for rationale behind trading positions and if people had seen anything out of the ordinary."

Sources say the LME is also looking into sliding nickel stocks in LME registered warehouses <MNISTX-TOTAL>, which at around 84,000 tonnes are near eight-year lows and about half the levels seen in the middle of September.

"A Chinese company did buy a lot of nickel in June-July. If they used the three-month contract, then they would have started taking delivery in September-October," a nickel industry source said.

China's Tsingshan Holding Group bought large quantities of nickel on the LME to supplement its own output, two sources familiar with the matter told Reuters in July.