Nickel trading volumes on the London Metal Exchange (LME) fell by more than 40% in July as funds, consumers and producers continued to avoid the market - months after trading was suspended for more than a week in March due to a sharp price spike.
Traders said many previous market participants feared they could be hit again by price volatility, while others argued that the type of nickel traded on the LME was no longer representative of global markets.
The world's oldest and largest industrial metals market canceled billions of dollars in trades on March 8, after prices surged more than 50% in a matter of hours to record levels above $100,000 a tonne.
Average daily nickel trading on the LME fell to 34,962 lots or 209,772 tonnes in July, down nearly 42% from a year earlier. Nickel sales rose more than 22% and 23% in January and February, respectively.
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"Volumes (in the metals market) are generally down, partly due to a slowing global economy, but nickel has an additional burden," said a metals trader at a natural resource fund. "People are still nervous about trading on exchanges."
Declining volumes and open interest -- the number of contracts that are about to expire or roll over to the next settlement date -- imply low liquidity, which could exaggerate price action.
“We have low volumes and open interest, and the market is becoming increasingly illiquid,” said a nickel trader, adding that illiquidity has driven some fund business away.
Traders said the chaos in March and a sense that LME contracts no longer represented the nickel market meant many consumers and producers were avoiding exchanges.
According to Macquarie analyst Jim Lennon, the total nickel tradable on the LME this year is around 600,000 tonnes, accounting for 19% of global supply and more than 3.1 million tonnes.
The rest is nickel pig iron and nickel iron used to make stainless steel. Nickel is also a key material in the batteries that power electric vehicles.