By Pratima Desai
LONDON (Reuters) – Buyers of nickel on the London Metal Exchange nervous about receiving material that does not meet specification are rolling their positions forward by selling nearby contracts and buying longer-dated ones, traders said.
The LME said last Friday it had cancelled nine warrants or 54 tonnes of nickel which had failed to meet the specification of its nickel contract. Warrants are title documents conferring ownership of metals stored in LME registered warehouses.
Worries about more non-conforming nickel in the LME system escalated after some nickel delivered by LME approved warehouse firm Access World to Trafigura and Stratton Metals turned out to be stone, according to sources with knowledge of the matter.
Sources say the incidents will further damage confidence in nickel trade, both globally and in the LME system, after a trading fiasco last year.
“No one wants to pick up stones,” one trader said.
Nervousness about taking delivery of nickel on the LME can be seen in the steep discounts for nearby contracts against those with a longer maturity.
The discount or contango for the LME’s cash against the three-month nickel contract, last at $362 a tonne, is the highest since December 2007.
The discount for buying nickel tomorrow and selling it the day after — known as tom-next — jumped to $50 a tonne from $5 a tonne at the close on Wednesday.
The tom-next contango is the largest since March 7 last year, one day before the LME suspended nickel trading due to prices climbing above $100,000 a tonne in disorderly trade.
“The LME has no reason to believe that any other LME-approved facility is affected by the irregularities found in nine nickel warrants last week at one LME-licensed warehouse and we are confident that this is an isolated incident,” the LME said in response to a request for comment.
“We are continuing to work with warehouse operators to complete a thorough check of LME-warranted bagged nickel – the majority of warrants have now been checked, with no further irregularities found, and we will communicate with the market via notice to confirm completion shortly.”
The LME last week said it would postpone the resumption of nickel trading during Asian hours by a week to March 27 after saying it had found problems with stored nickel.
(Reporting by Pratima Desai; editing by Kirsten Donovan)
