Winter Park, Florida 31/08/2016 - The eventual delisting of several Nornickel (formerly Norlisk Nickel) brands could prove a tricky endeavour given the large amount of metal sitting off-warrant, ICBC Standard Bank said in a note.
Nornickel decommissioned its outdated nickel plant in the city of Norilsk in Russia as of August 17 and the company has been been in discussions with the London Metal Exchange about delisting the relevant brands – Norilsk Combine H-1 and Norilsk Combine H-1Y.
But the LME has said that it will delay the delisting due to the significant off-warrant stocks of these two brands.
“The exchange will continue to keep this situation under review, and intends eventually to proceed to delisting when it considers this may be achieved in an orderly manner,” LME said. Any such move to delist will be accompanied by at least 90 days of notice.
Nornickel will hold similar talks with the Shanghai Futures Exchange (SHFE) later in September.
"With Full Plate Cathodes (the majority of which are likely to be Norilsk brands) representing 38 percent of visible LME stocks, down from nearly 100 percent of LME stocks even as recently ago as 2012, the immediate risk to the LME appears low... on the surface at least," IBCBS said in note.
"The problem is where those cathode stocks have gone, with the strong suggestion that off-warrant stocks may be quite significant especially in China given the ability to deliver full plate cathodes into the SHFE contract," the bank analysts said.
Also, because the SHFE-LME arb window for nickel is closed, there could be significant amounts of financed nickel in Shanghai bonded warehouses. If the Nornickel brands were to be delisted from the LME and/or SHFE, they would instantly become less liquid and desirable.
"The question therefore is whether there is a panic to deliver those brands into LME warehouses before they get delisted and the impact that will have on LME prices and spreads, or whether they will deliver into the SHFE contract," IBCBS said.
An influx of Nornickel brands onto the LME or SHFE would likely weaken the underlying prices and premiums but perhaps more importantly the delisted brand would become "very sticky and clog up the clearing tom/next market, which will find itself in near-permanent full finance".
"It’s not clear how this situation will resolve itself, and is more of a potential hazard rather than a definite but it is an interesting counterpoint to the Philippine ore ban/disruption and a remainder of the impact that metal financing can have on commodity markets," the report concluded.
(Additional reporting by Vivian Teo)