The contract is now subject to regulatory review and an approval process by the Monetary Authority of Singapore (MAS), where Abaxx is based.
“We’re internally and operationally ready, with the goal of becoming the benchmark contract for nickel sulfate,” Daniel McElduff said. “We also plan to launch other new battery metals products.”
McElduff is also the company’s head of strategy and development.
In addition to nickel, Abaxx plans to launch regional contracts for physically-delivered liquefied natural gas (LNG) as well as carbon futures.
McElduff was previously senior director of research at the New York Mercantile Exchange and was responsible for product development at Clearport, both now part of the CME Group. He joined Abaxx in July 2018.
Abaxx was founded in 2021 by current chief executive officer Joshua Crumb, a former Goldman Sachs executive and director of corporate development at Lundin Mining. The Abaxx Commodity Futures Exchange is based in Singapore and will have its own clearing house.
According to McElduff, the exchange had been looking at developing contracts in battery raw materials such as nickel, given their relative importance in electric vehicles (EVs) for energy transition. But when unprecedented volatility led the London Metal Exchange to suspend its nickel contract and cancel trades in March 2022, Abaxx fast-tracked its plans, he said.
“Choosing to go down the route of nickel wasn’t a reaction to the [situation at the] LME, but it pulled plans forward,” he said. “We were already thinking about battery metals, but we were also looking at metals that weren’t being served. The backdrop of the LME issues accelerated those plans.
“The least-served product with the best commercial opportunity for us was nickel,” he added.
Contract development
A key moment in the timeline of the contract was an approach made about a year ago by a mining company that asked Abaxx to assist with the development of an alternative marketplace to the LME, McElduff said.
The company hired former Glencore nickel trader Sacha Lifschitz as a consultant, to work on the project with Abaxx chief commercial officer Joe Raia, McElduff added.
That work gradually extended to bilateral meetings and working group discussions with 21 firms, he said. These included global miners, merchant trading firms, major global automotive makers, EV battery manufacturers, nickel sulfate producers and bank or broker trading firms.
“We had to determine which product the market needed, including whether a Class 1–lookalike contract [to the one offered by the LME] would suffice. It was very clear from the meetings that there was a desperate call for an alternative or an addition to the existing LME contract, from a pure risk-management perspective,” he said.
“Nickel sulfate was a natural evolution, given its use in EVs, but we also recognized that it could be used as a proxy for other nickel units, in the same way the LME is used now,” he added.
The LME nickel contract is for a Class 1 product comprising pure nickel metal, normally containing more than 99.8% of nickel by content. In contrast, the product form needed to make batteries is nickel sulfate, which historically was made directly either by nickel producers or by dissolving Class 1 nickel in nickel metal briquettes and powder.
Over the past few years, however, the main product form used to make nickel sulfate has shifted from being Class 1 nickel to nickel intermediates such as nickel matte and mixed hydroxide precipitate (MHP). Class 1 is now the most expensive feedstock used for making nickel sulfate.
This supply chain transformation has created a growing disconnect between the forms of nickel being produced and traded in the physical market and the form being traded in legacy contracts, and Abaxx hopes to bridge this gap, McElduff said.
Fastmarkets calculated the price for nickel sulfate, cif Japan and Korea, at $4,818 per tonne on August 25, up by 1.77% from the previous week, with the nickel sulfate premium, cif Japan and Korea, assessed at $1,400 per tonne on the same day, unchanged since July 14.
Meanwhile, Fastmarkets’ price assessment for nickel sulfate, min 21%, max 22.5%; cobalt 10ppm max, exw China, was 29,500-30,500 yuan ($4,044-4,181) per tonne on August 25, unchanged since August 11.
Physical deliverable contracts
The meetings also determined a market desire for a physically deliverable contract.
McElduff did not specify how Abaxx intended to achieve that. He did say that the company would not go down the route of creating a major warehousing network similar to that used for legacy contracts, such as the LME nickel contract.
Even though Abaxx sees the value that market makers contribute to providing liquidity, the exchange is not counting on them to start building liquidity to get the contract off the ground. McElduff expects the nickel sulfate contract to be initially used by commercial users plus commodity trade houses, with additional participants naturally following when it gains traction.
“My personal opinion is that if you need a market maker to get a product going, then it probably doesn’t have very significant commercial use. The products we’ve developed have always successfully grown organically,” McElduff told Fastmarkets.
“If we see a gap where it makes sense for a market maker, we would consider that, but I believe we’re creating a product that will have significant commercial demand and appeal without the need, and we’ll build on that,” he said.
It will also take environmental, social and governance (ESG) issues surrounding the production of nickel sulfate into account, McElduff added, by using its technology to facilitate ways to establish the credentials of products via a transparent method and allowing the market to decide their value.
In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.
