The London Metal Exchange (LME) said on Tuesday the market for “green” nickel is not yet large enough to support “vibrant trading” in a dedicated green futures contract, Kallanish reports.

In addition, the company has also considered whether to introduce other traded contracts such as nickel sulphate, matte and other Class II materials, but found “limited support” for such.

The announcement follows a widening call from miners for the exchange to differentiate Class I and Class II nickel products in its nickel contract. They’ve called for a green premium for sustainably produced nickel, as a growing supply of so-called “dirty nickel” from Indonesia becomes LME-eligible material.

From the likes of mining giant BHP to Russia’s Nornickel and Australia’s mining billionaire Andrew Forrest, market participants have been blaming the convergence of Class I and Class II nickel prices, for the depressed nickel prices. Indonesia is flooding the global markets with nickel, contributing to the collapse of a number of nickel mines around the world.

With the backing of Chinese companies, the Indonesian nickel industry has grown rapidly since 2019, with new techniques enabling the country to exploit low-grade nickel deposits and process them into battery-grade material. The issue is that such production is linked to high-carbon emissions (usually reliant on coal), mining waste pollution (tailings) and deforestation. It’s also much cheaper than the more traditional nickel mining and processing methods.

Last year, the LME introduced four new nickel brands to its portfolio, adding 91,600 tonnes/year of production capacity as LME-eligible material. More additions are pending this year.

While the miners blame the exchange for contributing to the bleak nickel outlook, the LME says the measure has helped it rebuild stocks, confidence and liquidity of the LME nickel contract following the 2022 nickel price crisis. Additionally, the exchange also sees the convergence of different types of nickel, those used in batteries and those used in stainless steel, as a positive outcome.

In a notice seen by Kallanish, the LME says it has considered introducing a green premium to more sustainable nickel products, but also noted that the carbon footprint for a tonne of Class I nickel can vary widely, ranging from 6 t to more than 100 t of CO2 equivalent per tonne of metal.

At present, it has determined a threshold of 20 t of CO2 equivalent (or less) across scope 1-3 is an “appropriate level” to start the identification of a low-carbon nickel premium. It claims to already offer a solution to market participants, who can procure and price nickel at the LME with specific ESG characteristics. If specific ESG credentials are key to certain players, then the LME suggests they use spot trading data offered by Germany-based Metalshub.

Meanwhile, the exchange also noted another major issue revolving around a potential premium is the current lack of consensus on what constitutes “green” nickel. “Such a standard would need to consider carbon footprint but also other sustainability criteria including environmental management practices, respect of labour rights, water management, and wider business integrity and transparency considerations – to name just a few,” it adds.

“Over time, the LME expects that rather than the emergence of a two-tier market, metal with the best sustainability credentials will attract an additional premium over metal narrowly complying with a particular CO2 threshold. However, this will rely on industry consensus to develop on the most important sustainability criteria, compliance with ESG standards accurate measurement, and the availability of sufficient transaction data,” the exchange concludes.