LME brokers see big gains in 2022 from volatility after nickel debacle
24/04/2023 15:47
By Eric Onstad
LONDON, April 24 (Reuters) - Most brokers and banks
trading on the London Metal Exchange (LME) had a bumper year in
2022 in a highly-volatile market, but a provision by JP Morgan
due to a nickel crisis weighed on its profits, according to
results and industry sources.
In March last year, nickel prices saw a wild price spike,
spurring the LME to shut down trading for the first time since
1988 and cancel deals.
The resulting turbulent price action, along with jumpy
markets caused by the Russia-Ukraine war and rising interest
rates, provided rich opportunities for trading.
StoneX Group Inc SNEX.O , one of eight top-tier members of
the LME that are allowed to trade on the open-outcry floor, saw
overall net profit soar by 78% to $207 million last year.
It did not break down profits for its metals business, but
Chairman John Radziwill noted in its annual report that the
146-year-old LME experienced its "biggest crisis in decades"
when nickel prices doubled to more than $100,000 per tonne in a
matter of hours.
"As a company that gains considerable tailwinds from market
volatility, these conditions are ideal for our growth if we
continue to effectively manage our risk," Radziwill said.
The LME nickel debacle hammered volumes on its nickel
contract, sliding by 28% in 2022 with overall exchange activity
down 8.3%.
But even though volumes fell on the world's oldest metals
exchange, the price swings boosted business for LME brokers,
many of which, including Nanhua Financial UK and CCBI Global
Markets UK, confirmed to Reuters they had strong results last
year.
Marex, one of the world's largest privately-owned
commodities brokers, reported record results for 2022 earlier
this month.
"Volatility certainly helps in the sense that clients need
to hedge more and there are more opportunities to be profitable
in some of those trades," CEO Ian Lowitt told Reuters.
"But it is problematic to the extent that it creates the
risk that some clients might default or fail."
JPMorgan Chase & Co JPM.N , one of the biggest banks in
metals, took a provision of $120 million for the nickel crisis
last year and has not provided an update since then.
JPM along with other investment banks give few detailed
figures on commodities trading when posting results, grouping
the sector in FICC - fixed income, currencies and commodities.
An industry source said including the provision meant
largely flat profits for JP Morgan in its metals business last
year. JP Morgan declined to comment.
(Additional reporting by Peter Hobson; Editing by Emelia
Sithole-Matarise)
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Reuters Messaging: eric.onstad.thomsonreuters.com@reuters.net))