By Song Xiaolang from Jinrui Futures
On March 27, nickel and tin were officially listed for trading on the Shanghai Futures Exchange (SHFE), seeing the trading of all contracts smoothly conducted. By now, a complete system of 6 base metal futures products, consisting of copper, aluminum, lead, zinc, nickel and tin, has been established as a counterpart of the London Metal Exchange (LME).
The day of the listing didn’t witness high passion for trading, but the seduction of nickel was somehow spotted. During the daytime session, the trading volume of nickel and tin futures numbered only 32,000 contracts, which was so trivial compared with the trading volume of copper futures at 980,000 contracts that day. However, the price fluctuations of nickel and tin heavily overtook that of copper, and by the close of night trading session that day, the prices of nickel and tin saw a decline of 3.3% and 0.4% severally, so that investors jokingly dubbed nickel futures as “seductive nickel”.
Investors have been paying close attention since the SHFE started to get prepared for the listing of nickel and tin futures, with some even asserting that nickel is sure to become the second largest base metal product, mainly based on three reasons: firstly, as the world’s largest nickel producer and consumer, China features a large number of potential participants and solid market foundation; secondly, with high marketization degree, nickel boasts smooth spot trading, sufficient price competition, no price control and rich trading opportunities; thirdly, of high degree of internationalization, nickel shows strong international price linkage, as customs data indicated that in 2014, the import of electrolytic nickel reached 130,000 tons and that of nickel ore sands and concentrates amounted to 47.76 million tons, meaning high foreign-trade dependence of resources.
However, with the listing and maturing of nickel and tin futures, the three basic functions they are entrusted with will show their power gradually. Firstly, price discovery. China’s pricing of nickel and tin have been passively following the LME so far, and the listing of nickel and tin in Shanghai bourse will help enhance China’s right to pricing. Secondly, risk management. There’re a lot of upstream and downstream enterprises in China’s nickel and tin industries, so that there has to be a risk management tool to guarantee steady operation of enterprises. Lastly, the investment. From the perspective of hedging transactions, nickel will become an indispensible part in hedging portfolio, and from the perspective of arbitrage, there’ll be a lot of arbitrage opportunities among nickel futures on the LME, nickel futures on the SHFE, spot goods of nickel and the NPI stainless steel.
The significant fluctuations of nickel and tin prices have seduced higher attention of investors. With the trading maturing and fundamental situations changing, they are expected to become the next products hot in the futures market.
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