Consider the following thought experiment: you are a nickel trader, and you cancel a chunk of the 92,000 tonnes of nickel held under live warrant in warehouses in Johor, but 102,648 tonnes of nickel stored there have already been cancelled. Is your metal going to be stuck in a queue?
To seasoned physical traders, the answer is simple, if frustrating: yes, it will be, probably for a good 30 days at least.
But according to the London Metal Exchange’s latest data on the queue lengths across its global storage network, the answer is no: the September figures show that while more than 100,000 tonnes of metal was cancelled in Pacorini warehouses in Johor at the end of the month, there were no queues to withdraw nickel or any other metal from the company’s sheds.
Hotline has been reliably informed that the likely explanation for this is that the cancelled material had not been scheduled for withdrawal at the end of the month, despite being cancelled in mid-September. Anecdotal reports from the physical market indicate that a queue in Johor has now emerged.
However, there was a short time – about two weeks or so, going by the available data – when anyone who cancelled metal and scheduled a delivery out of Johor would have been able to access the material immediately, without needing to wait for the previously cancelled material to be delivered out.
It is not the first time this has happened, and physical traders have told Hotline in the past that while it may look like a queue has developed in a warehouse location, it is sometimes worth trying to schedule a withdrawal, on the off-chance that the cancelled material has not yet been ordered out.
Withstanding the material being rewarranted, cancelling warrants will at some point lead to the creation of the queue, but the LME itself does not impose limits on the length of time that material can be held under cancelled warrants without being scheduled for withdrawal.
So, like Erwin Schrödinger opening the box to determine the ambiguous mortal status of his maltreated cat, sometimes the only way to know for certain whether the material is in a queue or not is to cancel some warrants and find out.
The LME will open the box on Tuesday November 10 when it releases warehouse stock data for October. So Hotline asks again: will the queue be there, or will it not?
(Author’s note: Hotline is aware that most of the material that has been cancelled in Johor is not actually nickel cathode, but somehow ‘Schrodinger’s bagged briquettes’ didn’t have quite the same ring to it.)
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