LME Imposes Backwardation Limit For Nickel

At 1700 hours on August 16, The London Metal Exchange (LME) announced that the Special Committee has imposed a backwardation limit of $300.00 per tonne per day in the nickel market and that there will be a suspension of the Lending Guidance in respect of those with nickel positions.

After taking account of all the relevant factors, and following consultation with LCH.Clearnet, the Special Committee has resolved that:

1. Backwardation limit

Those with short positions in nickel falling prompt on Friday 18 August 2006, and on subsequent prompt dates until further notice, who are unable to effect physical delivery and/or unable to borrow metal at a backwardation of no more than $300.00 per tonne per day, shall be able to defer delivery for a day at a penalty of $300.00 per tonne. Those with long positions for prompt on those days who are subject to deferred delivery shall be entitled to compensation of $300.00 per tonne per day

2. Lending Guidance

The Lending Guidance in respect of nickel shall be suspended with immediate effect such that those with dominant long positions in nickel shall not be obliged to lend in accordance with the Lending Guidance until further notice.

Commenting on the announcement, Simon Heale, LME Chief Executive said:

“Nickel stocks are at historically low levels and we now have a genuine material shortage. Our first priority is to ensure that trading remains orderly and to prevent the risk of settlement defaults.

“The Special Committee has been constantly monitoring nickel stocks, the effect of those trading for the nearby prompt dates and conditions in the nickel market. The Committee will keep this under constant review and will remove the backwardation limit and reintroduce Lending Guidance as soon as it considers it prudent to do so.”

Background:

The Special Committee is a sub-committee of the Board to which the Board has delegated emergency powers under Regulation 15 of Part 3 of the Exchange’s Rules and Regulations.
The LME is the world’s premier non-ferrous metals market.
The LME turned over 78 million lots in 2005, which equates to around $4,500 billion.
Trading at the LME takes place through open outcry in ‘the ring’, through an inter-office telephone market and through LME Select.
The LME commenced trading in polypropylene and linear low density polyethylene futures contracts on 27 May 2005.
The LME announced its intention to develop risk management tools for the steel industry in October 2005 and in May 2006 confirmed that it will work with Platts to publish references prices for steel. If the references prices gain acceptance with industry the LME will consider launching futures contracts, settled against the reference prices.