The Nickel Shift: How Shanghai's Commodity Power Play Could Redefine EV Supply Chains

The 2022 nickel crisis that saw the London Metal Exchange (LME) temporarily shut down trading exposed the fragility of a single-pricing system. Now, with the Shanghai Futures Exchange (ShFE) aggressively expanding its yuan-denominated nickel contracts, the world is witnessing a seismic shift in commodity market governance—one that could reshape the electric vehicle (EV) supply chain and pricing dynamics for years to come.

Geopolitical Tectonics: China’s Commodity Ascendancy

The ShFE’s nickel contract, launched in 2015 but gaining momentum post-2022, is no longer a sideshow. It is a deliberate geopolitical maneuver to wrest control from the LME, which has long set global nickel prices. By tying its contracts to the yuan and leveraging China’s dominance in nickel refining (processing ~90% of Indonesian ore), the ShFE is positioning itself as the benchmark for Asia’s EV battery giants.

The LME’s recovery—its nickel futures volumes jumped 75% year-on-year in 2024 to 60,991 lots daily—is impressive, but it masks a deeper vulnerability: . While the LME’s open interest remains below pre-crisis levels, the ShFE’s trading volume has grown steadily, with 50% of its 2024 activity occurring during Shanghai’s “night hours,” aligning with LME’s Asian session. This overlap creates a dual-pricing dynamic, where ShFE prices increasingly reflect regional fundamentals rather than merely reacting to London.

Liquidity Risks: A Two-Contract World

The ShFE’s yuan-denominated contracts face accessibility barriers for non-Chinese firms, but this is changing. Beijing’s push to internationalize the yuan and its Belt and Road infrastructure are incentivizing global traders to engage. Meanwhile, the LME’s liquidity, though robust, is concentrated in a handful of large players, creating systemic risk. A comparison reveals that while the ShFE lags in absolute terms, its growth trajectory is steeper, especially in battery-grade nickel.

For investors, this bifurcation poses both peril and opportunity. Companies reliant on LME pricing—like Tesla or CATL—face volatility if ShFE contracts gain traction as an independent benchmark. The LME’s afternoon prices, historically the global anchor, now compete with Shanghai’s yuan-denominated settlements, creating arbitrage opportunities but also widening gaps in regional pricing.

EV Supply Chains at the Crossroads

Nickel is the linchpin of EV battery chemistry, and its price is now a geopolitical battleground. China’s control over refining and its push for domestic EV dominance (accounting for 60% of global sales in 2024) means ShFE pricing could soon dictate battery costs. Western automakers, already at a cost disadvantage, must hedge against a yuan-linked nickel benchmark—a complexity that could delay investments in high-nickel cathodes.

The iPath Nickel ETN, which tracks LME prices, has underperformed the Shanghai Composite since 2022, reflecting capital’s shift toward yuan-denominated assets.

Investment Strategy: Position Now Before Bifurcation

The window to capitalize on this shift is narrowing. Here’s how to play it:

1. Go Long on ShFE Exposure: Invest in yuan-denominated nickel ETFs like the Global X Nickel ETF (NICK) or the VanEck Nickel ETN (NINI), which now include ShFE futures in their benchmarks.
2. Mine the Yuan Transition: Back Chinese nickel miners such as China Molybdenum (600399.SS) or Norilsk Nickel (GMKN.ME), which benefit from rising ShFE liquidity and yuan settlement.
3. Hedge with LME Liquidity: Pair nickel ETFs with ProShares UltraShort Silver (XAG), as precious metals often inversely correlate with industrial metals during geopolitical shifts.
4. Watch for Bifurcation Catalysts: Monitor ShFE’s open interest growth and whether the LME’s OTC reporting reforms can stem the exodus of trading volume to Shanghai.

Conclusion: The Nickel Divide is Here

The LME’s recovery is a testament to its legacy, but the ShFE’s rise is not just about price discovery—it’s about redefining who holds the keys to the EV economy. Investors ignoring this structural shift risk being left behind in a two-tier nickel market. Act now: allocate 5-10% of commodity exposure to ShFE-linked instruments before pricing bifurcation becomes irreversible. The next nickel crisis won’t be a liquidity shock—it’ll be a geopolitical reckoning.

The data tells the story: as ShFE activity climbs, LME inventories swell—a sign of fragmented liquidity. The race for nickel’s future is on.