According to Reuters article published on April 11 , 2023, an exclusive deal that will lead to the development and marketing of indices for Indonesian nickel, signed by UK-based Global Commodities Holdings Limited (GCHL), could change the landscape for referencing nickel prices, industry sources say.
Since last March, when the London Metal Exchange (LME) suspended nickel trading for more than a week after prices erupted in a record breaking surge, many consumers, producers and traders have been looking for an alternative.
UK-based GCHL said in a release the indices would be used by all stakeholders as a reference for "transactions, budgeting, forecasting and as a tool for the Indonesian government to control and monitor nickel mines and downstream activities".
Metal industry sources say this could be game-changing because Indonesia is the world's largest nickel producer. It accounted for 48% of the 3.3 million tonnes produced last year but does not have its own indices.
"If the Indonesians say people have to use these indices to value exports for taxation purposes then it will make it a de facto regulatory push to use the indices as a benchmark," one metal industry source said.
Meanwhile, slumping nickel volumes on the LME have diminished the relevance of its contract to the nickel industry.
Part of the problem for the world's largest metals trading forum is that the nickel that can be delivered against its contract known as class 1 now amounts to only about 20% of the global market compared with 50% more than a decade go.
The market is now dominated by class 2 nickel, which mainly comprises of ferronickel and nickel pig iron (NPI), a lower grade product used mainly for stainless steel, mostly produced in Indonesia.
"GCHL and Indonesia’s PT Indeks Komoditas Indonesia (PT IKI) have signed a memorandum of understanding that will lead to the development and marketing of indices for Indonesian nickel," UK-based GCHL said.
The project to develop nickel indices with PT IKI will complement GCHL's plans to offer a platform, expected to go live later in April, to buy and sell class 1 nickel.
"Class I nickel pricing will be derived entirely from trades and qualifying bids/offers on the GCHL platform, and GCHL will additionally permit trading in the PT IKI index materials.
The indices will be based on the latest pricing data from nickel mines, smelters, traders and consumers, GCH said.
"GCH will be responsible for identifying and managing the futures exchange relationships that will emerge for the various indices that the commercial partners are developing," GCH said.
Exchanges could use the indices to create futures that could be used by the industry to hedge their needs.
