London 31/08/2016 - Speculation that the SHFE might delist one of Nornickel's brands after the recent closure of its Polar division has received mixed responses from market participants in Asia.
"This is a hot topic because the market is arbitrage-driven, and most arbitrage deals are related to Russian nickel [Nornickel brands]," a trader in Shanghai said.
Three Nornickel (formerly Norilsk Nickel) brands - Norilsk Combine H-1, Severonickel Combine H-1 and Serveronickel Combine H-1Y - have become popular among arbitragers in China after the SHFE approved them for delivery against its futures contracts in June 2015.
"We love them - they are financeable, deliverable [onto the SHFE] and can gain higher premiums [than non-SHFE-deliverable nickel]," a second trader in Asia said, adding that Russian material in Singapore and Malaysia has also been regularly shipped to China to seek healthy premiums.
Spot premiums for SHFE-deliverable full-plate nickel cathodes have held above $150 in Shanghai for most of first half of 2016 before the LME-SHFE arbitrage turned negative in the third quarter, according to FastMarkets' assessments.
But Nornickel's outdated nickel plant in the city of Norilsk in Russia, which produced Norilsk Combine H-1, has been fully decommissioned two months ahead of schedule, it said on August 26.
"This brand was only produced by the Polar division," a Nornickel source told FastMarkets, adding that the other two SHFE-deliverable brands should not be affected because they are produced at its Kola division.
"So if there's any delisting decision to be made by SHFE in the future, it will only happen to Norilsk Combine H-1," she added.
Nornickel plans to hold talks with the SHFE in September about the end of production of Norilsk Combine H-1, it said in a statement.
The company has already spoken with the London Metal Exchange (LME) about delisting the relevant brands, but the LME will defer the delisting " to protect the interest of market participants", it added.
"Nornickel probably will come to SHFE in the September… we will post an announcement [if we decide to delist the brand]," an SHFE representative told FastMarkets without disclosing when it will reach a decision and at what point the brand will be delisted.
Given such uncertainties and an improved but still negative arbitrage, most traders are sitting on the sidelines - no deals have been reported this week.
Some traders believe the possible delisting could upset the market due to the brand's considerable market share - especially in China - although there is no official data available on how much Norilsk Combine H-1 is traded in the country.
"30,000 tonnes, or around half of the nickel supply in Shanghai bonded warehouses, are Norilsk Combine H-1, according to my rough calculations," a third trader in China said. "If it's delisted, all of it cannot be delivered to the SHFE - how could arbitragers deal with that?"
Shanghai bonded nickel inventories dipped to 60,000-70,000 tonnes in July from 65,000-75,000 tonnes in June, with some of the stocks heading to SHFE-listed warehouses.
Still, others downplayed the potential impact, believing the two unaffected Russian brands in Shanghai's bonded zones are enough to cover any arbitrage-related need in the short term.
"The arb has closed for almost the whole August and I don't think it will open soon or stay positive for a long time - it's hard for LME prices to drop further as the current level is close to the cost price and it's not easy for SHFE prices to rise due to high stocks in China," a fourth trading source in Asia said.
"If that's the case, then nobody wants Russian nickel at all," he added.
(Additional reporting by Vivian Teo, editing by Mark Shaw)