SMR interviews Martin Abbott, CEO of Global Commodities
2023-05-16, Market News, Raw Material News, Global
SMR Stainless Club welcomed Martin Abbott, CEO of Global Commodities Holdings, in the interview series to talk about the new nickel platform.
In the stainless steel industry, nickel holds paramount significance as a key ingredient. The manner in which nickel is traded greatly impacts the industry. SMR Stainless Club extended a warm welcome to Martin Abbott, a prominent figure in the industry, as he strives to revolutionize nickel trading practices. Martin Abbott, formerly the CEO of LME and currently serving as the CEO of Global Commodities, sheds light on his transformative vision and provides insights into key questions in this exclusive interview.
[Below the video, you can find the article featuring the interview.]
1. What led you to the decision to create a new physical nickel trading platform?
This company has an operating subsidiary called “Global Coal” which has been in operation for over 20 years and it has been successfully trading seaborne cargoes of coal. As a consequence of that trading, the company has been discovering benchmark prices, one of which is used as the settlement bases for the ICE futures contract in Newcastle coal. This methodology is transferable and it absolutely can be used in other market places. We were also looking for longer term to diversify the global coal business into other markets. The coal is not the most fashionable of businesses to be in right now. We were initially looking at various metals markets and at various adjacent markets. Last March LME had its moment in its nickel market and there was sense that there was a dysfunction. It was a dysfunction that we had actually recognized in a number of markets. It is not just the LME or just nickel, it is a dysfunction that we think we can address with the methodology.
2. How do you envision the GCH platform to provide an alternative to the LME futures trading?
It is important to note that we have no intention of providing an alternative futures trading, we will never replace everything the LME does nor everything that any other futures exchange does. What we will focus on is the provisions of a purer and less volatile settlement price against which the futures contracts can be unwound. We will have a physical platform and participation in that platform will be limited to physical users of the market. Because the only way to transact is to make or take delivery. There is no financial alternative and therefore what we discover is a price purely for physical transactions. That price then can be used by a futures exchange to settle futures contracts. Therefore we think that we are an enhancement to the futures industry and we certainly are not an alternative to it.
3. Global Commodities has some very prominent shareholders (Glencore, Anglo American, BHP Group, Rio Tinto). What kind of role do they play in this GCH platform? If any, how do you propose to attract the traders and investors to build up the required liquidity that you need for the new platform?
Our shareholders are drawn from the major parts of the mining industry because of our history in coal and they are also derived from the power generating industry as well. They are shareholders but they have no operating influence over what we do, neither do they owe us any favors. Despite the fact that they are shareholders of this business, it doesn’t mean that they will immediately start trading nickel on the platform. We will have to persuade them just as we would have to persuade any member of the industry. We think that we can persuade many people that what we are offering is beneficial and we think that we will build liquidity. Because what we will offer is a platform on which companies can become a member. On becoming a member, they will take a look at all the other members, they will decide which ones they are willing to do business with on credit terms. That will be ticked off in a central register and it will be confidential to them and their counterparties. Then we have a counterparty matrix of companies in the industry who can bid an offer on the screen for delivery of nickel in a number of locations around the globe from Baltimore to Yokohama including Shanghai, Singapore, Amsterdam, Rotterdam and Jebel Ali etc. It will be on the basis of CIF but the delivery location will be the key location for our pricing purposes. We think that we will attract a lot of physical transactions because we are putting ourselves in the normal flow of the physical nickel. So people will be able to transact, the transaction price will form part of our index and our index will be public. It will be derived only from bids-offers and trades on the platform so there will be no speculation and there will be no subjective assessment by us nor by anyone else. It will simply be derived from what has happened in the physical market on any given day. We have already had good interest from potential participants and we are beginning the process of onboarding people this month.
4. How will you ensure that GCH platform will have fair trading practices?
We have over 20 years of providing a marketplace to the coal industry. This will be provided by the parent company “Global Commodities Holdings” rather than “Global Coal” but we are regulated by the FCA (Financial Conduct Authority) in the UK and National Futures Association in the USA. We operate under a waiver from Singapore regulator from MAS (Monetary Authority of Singapore). Our index is IOSCO (International Organization of Securities Commissions) approved. We are a European benchmark provider and regulated as such. We have an external compliance committee as well as an internal compliance committee. We actually have an enormous amount of compliance and oversight to make sure that we provide a level playing field. We are very experienced in delivering on that so I have no issues about the fairness and the equality of the participation in the platform.
5. One of the limitations of the LME is that they are only trading so-called Class 1. We all know that in stainless steel industry, Class 1 is more or less seen as the nickel of last resort. What is really used to produce stainless steel are other nickel carriers or nickel forms. Will you allow also other nickel products to be traded on your platform?
It is very difficult and I sympathize with LME as it was a problem when I was there as well. But yes we will put some of the so-called Class 2 products onto our platform. We have signed MoU (Memorandum of Understanding) with a group in Indonesia called “PT Index” and they have long history of providing a benchmark for Indonesian coal. They are going to use their methodology to provide prices for nickel ore and also for ferronickel, NPI and various other forms of nickel. We are working with them on the precise format of those indices. We will be the global marketing outlet for the Indonesian nickel data. We will carry that and we will make that available to our customers. We will also allow index trading against those indices. We will put the individual component material such as the ferronickel or the NPI. They will be available to trade on a bespoke basis on our platform with any resulting price data going back to the Indonesian index provider for inclusion in their index. So we will have Class 1 nickel traded directly on our screen. We will have the Class 2 nickel provided to us by a partner and we will carry that as a partner information but we will allow our trading on it. Over time, we hope that the trading element will become a greater part of the price discovery but that will be again down to the way that our partner manages the price integration. However, considering their track record, we have great confidence that it will work well. That will make us the first to have Class 1 and Class 2 nickel in a tradable format on a single platform. We are very confident and excited about that offering as well.
SMR comment: It is essential since you cannot ignore Indonesia anymore. Indonesia has become the biggest nickel producer by far and it is not Class 1 what they produce there, until now at least. There is definitely a key issue of making a better reflection. Today, the nickel price for stainless steel is not so much really referring to the LME as it is to the NPI in Indonesia. GCH will make that transparent and official so to speak.
6. You developed the LME from “not so big of an exchange” to a “GBP 50 million operation” level. What kind of challenges do you see here and what roadblocks do you foresee for that new platform?
There is always inertia in any market so we know that there is frustration with the existing pricing discovery methodology in quite a lot of the markets, not just LME. We believe that we have a good answer that will improve the quality of the price discovery. We also recognize the fact that it is much easier for people to stay on sidelines and say: “we will wait and see if it happens, would be nice if it works and if it does we will join in”. What we need to do is to get people sufficiently interested to be a part of that initial successful drive, to get prices on the screen and to get some transactions going. That is never easy and it will take a lot of work, which will mean a lot of traveling. But we will be working very hard over the next few months to establish users on the system and to get pricing data showing on the system. We also need to formulate some alliances. In particular with an exchange we have some very good conversations going on. There is still plenty of work to do but we do have good support. I think that the idea we have is fantastic and I can say that whilst remaining modest because actually the idea was had before I joined this company and the methodology was already existed. I am not claiming to be the genius who thought it up but I am hoping to be the one who manages to transfer it to other markets.
7. How this GCH platform will impact the physical nickel market supply and demand dynamics?
Like any price discovery platform, our goal is to be market neutral. To simply provide great quality pricing data. So in itself, we don’t set out to try and change the nickel market landscape. However, we do think that having more granular and perhaps data that is more rooted in the physical might assist the physical market in its planning and in its financing. Indeed in certain parts of the market at the moment which are not hedge-able, we will also assist in risk management and all of that could lead to healthier operations and healthier finances in parts of the marketplace. That will be a nice to have consequence of having a good price discovery basis in the marketplace.
8. You are providing a platform, you are not making the market yourself. Nevertheless, you follow the nickel market for such a long time. How do you see the nickel market evolving in next five to ten years and what role that platform will play?
I think the nickel market has done a lot of evolving over the last 10 years which has not been reflected in the way that nickel traded and priced. We already discussed that Class 2 nickel is effectively untradeable on a common platform- price discovery is very difficult. That was seen as less important when it was seen as just a ferronickel problem but now with the growth of Indonesia, with the growth of NPI and in particular with the growth of battery raw materials and the need for chemical grade battery grade nickel. The evolution that needs to happen is the evolution in price discovery to catch up with the evolution in the underlying market. So we need more granular pricing, we need more products being priced and we need more specific pricing points. That is what we hope to get to between our Class 1 and our collaboration on the Class 2 and the battery raw material nickel grades. Second part of that evolution is taking the market back from the hands of the financial players (which is where most commodity markets now sit) and put in the price discovery element firmly back in the hands of the physical market participants. The financial players are important as they provide liquidity in the forward curve and in the futures. But what we are offering here is an opportunity to remove them from the settlement price discovery and hand that back to the industry itself, which one imagines should provide a more stable somewhat less volatile and a more real price discovery.
9. If people in the companies are interested in, how should they proceed? What is the first step to get in touch with you? Also, what is the cost of doing business on the new platform?
There is a cost but for the initial period on nickel the cost will be largely waived. There will be a very small transaction cost associated with the transactions on the screen. The standard transaction size will start at 20 metric tonnes and we will be charging at USD 10 per tonne commission on the transaction. For the membership fees and the licensing fees on the data, we will initially not be charging for a period until we decide that the market is established. In order to participate, people can reach out to us from our website globalchl.com. You can find me on LinkedIn “Martin Abbott” and also “Alison Ellman” who has also worked in the LME previously is now head of business development in Global Commodities Holdings, also available on LinkedIn. We are very keen to talk to people so we will make time to talk to people to give demonstrations of the platform and explain in more details.
SMR comment: We all know that LME also has initiated some steps to reform the nickel contracts and other contracts probably as well. Martin Abbott will be participating to SMR’s conference in September in Zurich, Switzerland. LME will also be participating to this event so it will be quite interesting to have more discussions there. Those two platforms are not necessarily a full-front competitors but probably can complete each other. What Martin is doing is that he is not going into the futures business but he wants to make the physical business better, which was always a weakness. The people who needed the physical nickel never really liked the fact that the most of the business was speculative and this is actually what is reforming.
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