Singapore 05/05/2016 - Volumes in the Shanghai Futures Exchange nickel contracts surged and open interest hit a record high this week when funds switched to the metal after the exchange introduced measures to cool trading on its steel contracts.
Open interest for SHFE nickel surged to a record 811,286 positions on Tuesday, with 888,304 lots changing hands in the day. The buying interest saw the most active September nickel contract hit a six-month high of 76,390 yuan per tonne.
Trading volume for the contracts jumped to 1.46 million lots on Wednesday but open interest fell to 784,962 positions at close.
"Trading of the nickel contracts has been abnormal this week," an analyst with a Shanghai-based hedge fund said. "Funds that previously were not interested in nickel have come into the market."
Some funds have closed their positions in ferrous metal contracts - particularly rebar - and moved to nickel and aluminium after the SHFE's rebar contract price surged by around 70 percent since November to a 19-month high of 2,782 yuan per tonne on April 21.
The surge in rebar volumes, which saw the price hit trading limits on consecutive days during the April 18 week, prompted the exchange to introduce measures - including raising transaction fees and shortening night trading hours - to cool the frenzied speculation.
This seems to have had the intended effect - rebar trading volumes dropped to a total of 24 million lots over Tuesday-Thursday compared with some 23-24 million lots each day over April 21-22.
SHFE nickel has gained the attention of funds because it has been in a low price range for some time, an analyst with a Beijing-based futures brokerage said. While it has rebounded, the price increase has not been as sharp as that of SHFE aluminium, she noted.
"Funds are betting that nickel will be able to break out of its range," she said.
After falling to 63,310 yuan per tonne in November last year - its lowest since its March 2015 listing - SHFE nickel has gained around 20 percent. In comparison, SHFE aluminium has risen 40 percent since hitting an all-time low in November last year.
Similarly, SHFE aluminium had also attracted funds to open positions in April - market participants anticipate higher prices on tighter supply and improved demand in the second quarter.
Nickel's appeal also lies with its improving fundamentals. Low prices have resulted in stoppages at mines and smelters while stainless steel demand is recovering, a Shanghai-based nickel analyst said.
After contracting 0.6 percent last year, Chinese stainless steel production rose 6.5 percent year-on-year to 5.34 million tonnes in January-March. Chinese apparent consumption of stainless steel rose 4.4 percent year-on-year to 3.95 million tonnes during the same period.
Despite the spike in trading volume and open interest for SHFE nickel, industry watchers not not believe the exchange is likely to introduce measures to curb trading in the metal or other nonferrous metal contracts as it did for rebar.
The increase in volume, open interest and price are smaller than those of rebar while the non-ferrous metal contracts have also not hit trading price limits on consecutive days, they said.
"I don't think the nonferrous metal contracts will attract the attention of regulators," the Beijing analyst said.
(Editing by Mark Shaw)