London 18/05/2016 - Market participants expect the Shanghai Futures Exchange (SHFE) to expand its warehouse storage for nickel further even after it lifted capacity by 32,000 tonnes earlier this year.
There is a speculation that the exchange is considering an increase in nickel warehouse capacity by 20,000-30,000 tonnes in total to tackle a shortage of space, they said.
"I heard that some warehouses, who expanded previously, are applying for further expansions - at least 20,000-30,000 tonnes," a local trading source said.
"Major warehouses are in talks with SHFE about a potential increase," a warehousing source noted.
The exchange lifted nickel capacity by 32,000 tonnes on March 15 to 102,000 tonnes. But despite the increase, some deliveries of metal into warehouses are being delayed - as was the case at the start of the year - because some warehouses are already full, once analyst pointed out.
Available nickel capacity at SHFE warehouses fell to 12,072 tonnes in the week of May 13 from 36,992 tonnes in the week of March 25, according to data from the exchange.
More than 30,000 tonnes of nickel have been delivered to the SHFE against the active May contract, the expiration date for which was May 16 and the last delivery date for which is May 23, several trading sources also noted.
"It means that nickel will fill the capacity that was expanded earlier this year," the local trader said.
While the SHFE has yet to reveal a timetable for the potential expansion, the market consensus is for the SHFE to do so before September - the September nickel contract is the most active one after the May contract.
"It will be meaningless if the SHFE approves the expansion after September... market participants have to decide whether they will deliver the metal against SHFE before the contract expires in the middle of that month," a second local trader said.
SHFE was not immediately available for comment.
(Additional reporting by Vivian Teo and Vicky Chen, editing by Mark Shaw)