The Shanghai Futures Exchange (ShFE) is moving forward with plans to open its domestic nickel futures contract to foreign investors as early as this year, according to sources familiar with the matter. The decision marks a strategic shift to compete directly with the London Metal Exchange (LME) and provide the global market with a more stable alternative following the LME’s 2022 nickel trading debacle.
Why This Move Matters
The LME’s unprecedented suspension of nickel trading in March 2022—after prices surged past 100,000perton∗∗—triggeredacrisisofconfidenceintheexchange.Thefalloutincluded∗∗cancelledtradesworth100,000perton∗∗—triggeredacrisisofconfidenceintheexchange.Thefalloutincluded∗∗cancelledtradesworth12 billion, lawsuits from major investors like Elliott Associates, and lingering skepticism about the LME’s reliability as a global benchmark.
Now, the ShFE is positioning itself as a viable alternative by leveraging China’s Qualified Foreign Institutional Investor (QFII) program, which allows approved international firms to trade domestic Chinese futures. With over 900 QFIIs registered (including 200-300 commodity-focused firms since late 2022), the exchange aims to attract liquidity and establish Shanghai as a key pricing hub for nickel—a critical metal for stainless steel and electric vehicle (EV) batteries.
How It Would Work
- Existing Contract, Not New: Unlike previous considerations for a separate international contract on its INE subsidiary, ShFE is now focusing on opening its existing nickel futures to foreign participation.
- QFII Expansion: The exchange recently granted QFIIs access to stainless steel and fuel oil futures, signaling a broader push to internationalize China’s commodity markets.
- Regulatory Approval Needed: The China Securities Regulatory Commission (CSRC) must greenlight the move, but it has been actively encouraging exchanges to globalize their offerings.
Industry and Market Implications
- LME’s Vulnerability: The 2022 crisis exposed structural risks in LME nickel trading, prompting some market participants to seek alternatives.
- ShFE’s Opportunity: If successful, the move could shift liquidity toward Shanghai, especially among Asian battery and steel supply chains.
- Broader Competition: Other exchanges, including CME and ICE, have explored nickel derivatives, while Abaxx Technologies launched a nickel sulphate futures contract earlier this year.
What’s Next?
- ShFE will discuss the proposal at a two-day metals industry meeting in Shanghai this week.
- If approved, foreign investors could gain access to China’s nickel futures by late 2024, reshaping the global metals trading landscape.