LME announces approach to the "green" nickel market

The London Metal Exchange (LME) has addressed the rising demand for "green" nickel by incorporating sustainability into its pricing differentials and promoting better practices across the industry.

A recently published report shows the LME's initiatives, including the expansion of LME Nickel brands, challenges around introducing a new contract for green nickel, the role of digital platforms in pricing ESG characteristics, and the establishment of a standard for green nickel.

SMR identified the following key takeaways:

Expansion of LME Nickel Brands: The LME has added four new brands under the LME Nickel contract, contributing to a significant increase in LME-eligible material and aiding in the convergence of prices between class 1 and class 2 nickel markets.

Challenges with Green Nickel Contract: The market for green nickel is not yet substantial enough to support a dedicated futures contract, with ongoing debates about defining "green" nickel and concerns that a specialized contract might fragment the market.

Pricing ESG Characteristics: Digital spot trading platforms are recognized for effectively pricing metals with specific ESG characteristics, allowing for direct procurement that meets sustainability criteria.

Collaboration with Metalshub: Metalshub, a platform for trading physical metals, collaborates with the LME to offer a pricing and procurement solution that incorporates ESG credentials, including carbon footprint data, for nickel.

Defining Green Nickel: A consensus on what constitutes "green" nickel is lacking. A proposed standard would consider not just carbon footprint but also broader sustainability criteria. The LME supports efforts by industry bodies to define and measure ESG performance.

Role of the LME in Sustainability: The LME has introduced policies and tools like LMEpassport to improve transparency around ESG metrics, encouraging producers to demonstrate their compliance with sustainability standards.

According to Robert Messmer, Chief Analyst of Raw Materials at SMR, 'The London Metal Exchange (LME)'s innovative strategy to integrate sustainability into the nickel market faces a significant challenge due to the lack of a universally accepted definition of "green" nickel. This gap not only complicates the establishment of a coherent green nickel market but also casts doubt on the effectiveness of initiatives in addressing the fundamental concerns of environmental sustainability. Without a clear and agreed-upon standard, efforts may fall short, potentially neglecting deeper environmental impacts and the broader sustainability objectives necessary for a meaningful transformation of the industry.'"

The highlighted gap in the LME sourcing policy refers to the potential oversight where a project can meet the low carbon threshold and receive benefits for being "sustainable" while still causing significant environmental harm through deforestation and impacts on biodiversity. This situation reveals a critical flaw in the policy's design, as it narrowly focuses on carbon emissions without adequately considering other essential dimensions of environmental sustainability.

To address this gap, it's essential for policies like those of the LME to adopt more holistic environmental criteria. This would mean not only assessing carbon emissions but also considering the broader environmental impacts of mining operations, including biodiversity loss, water use, pollution, and social implications. Integrating these factors into sourcing policies would encourage more genuinely sustainable mining practices that protect ecosystems like Sulawesi's while supporting the transition to low-carbon technologies.

Please also check out our report on "Green" nickel vs. "dirty" nickel - A balancing act between sustainability and market dynamics