If the concentrated position had been short, would the LME have cared?


London Metals Exchange
Intervenes in Nickel Market

By Chris Flood
Financial Times, London
Thursday, June 7, 2007


The London Metal Exchange has intervened in the nickel market amid suspected collusion at a time of soaring prices and critically low stock levels.

"The LME has detected collusive behaviour in nickel trading and acted to tighten the lending guidelines for the metal significantly," said John Kemp, analyst at Sempra Metals.

The nickel market is small and relatively illiquid and traders describe the metal's physical supplies as "very stressed."

Nickel prices have soared this year with the benchmark three-month price rising 55 percent to a record $51,650 a tonne in May. Levels of stocks available to the market have fallen below 10,000 tonnes, although the situation is less acute than it was in April.

The LME has amended its rules to reduce the amount of nickel which market participants are allowed to control before they are required to lend metal back to other dealers or consumers.

The LME insisted the changes were introduced as part of its constant monitoring of the nickel market. "Trading in the nickel market is orderly and the decision to change the lending guidance was taken to ensure that trading remains orderly," it said.

Nickel prices fell 4.6 percent yesterday to $43,400 a tonne, following the LME move.

Nickel stocks have doubled since late April to 8,604 tonnes on Thursday and there has been talk in the market that further substantial increases of 5,000 to 10,000 tonnes were likely in coming weeks.

However, this had not led to a significant reduction in prices, leaving analysts puzzled as to why the market showed little sign of reacting to a deterioration in fundamentals.

Market gossip suggested that two or more participants were acting together to squeeze nickel prices higher but circumventing the LME's rules by maintaining their individual holdings of nickel below the level which would require them to lend back into the market.

The tightness in the market was reflected in the spread between the cash nickel prices and the three-month futures price, which was more than $4,000 a tonne recently. After the LME imposed the rule changes, the cash to three-month spread narrowed to $1,105 a tonne compared with $2,800 a tonne at Wednesday's close.

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