LME brokers see big gains in 2022 from volatility after nickel debacle

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, 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, 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.

(By Eric Onstad and Peter Hobson; Editing by Emelia Sithole-Matarise)

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