It should be mentioned that nickel had already rallied to $25,000 in January before easing off by the end of the month. Mr Xiang told Chinese news outlet Yicai that Tsingshan did not have any problems with its nickel trading. our Subscriber Agreement and by copyright law. We expect the LME nickel price to remain volatile in the near term, as the global nickel market finds equilibrium following recent events, S&Ps Sappor added, warning that an elevated risk of another short squeeze hitting the LME nickel market in the near term continued, given the presence of both a dominant warrant-holding position on available LME stocks and Tsingshans short position. If you rely on the information on this page then you do so entirely on your own risk. Worse, the chaos was spreading to other markets: Zinc prices spiked 15 per cent in a few minutes to a record high, only to collapse again. But to hedge against a a drop in prices, they use. The banks declined comment or did not respond to a request for comment. But the LME has defended its actions, arguing that the decisions it took were made with full regard to regulatory due process and in the interests of the market as a whole, according to a spokesman for the exchange, who spoke to UK financial-news publication City A.M. during the week after the suspension. Is the US Finally Warming to the Possibility of Creating a CBDC? A record-breaking rally in nickel prices that led the London Metal Exchange to halt trading on Tuesday is putting increased pressure on the Chinese stainless steel producer Tsingshan and its billionaire co-founder. Xiang shrugged off suggestions to reduce short positions, Tsingshans nickel short position stood at about 150,000 tons. The price spike left Tsingshan exposed to $8 billion USD of trading losses whilst struggling to meet their margin calls. The LME suspended trading in nickel on Tuesday morning after one of the most dramatic price spikes in commodity market history. Distribution and use of this material are governed by The industry leader for online information for tax, accounting and finance professionals. Assessing the Incremental Costs of Regulation and Supervision Faced by Next-Gen Operating Models for Bankers and Advisors, Macroprudential Policy and Real Estate Funds. 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CCBI Global Markets is another creditor, two separate sources said. . Jack Farchy, Alfred Cang and Mark Burton, Bloomberg News. read more. The LME has been asleep at the wheel, according to Andrew Mitchell, director of nickel research at consulting firm Wood Mackenzie, who spoke to the Wall Street Journal. But recent events have certainly injected a dose of volatility into the market. The current events are unprecedented, LME said in a notice. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright International Banker 2023 | All Rights Reserved Subscription | About us | Many traders expect the price to return to more normal levels once the margin call chaos has been resolved. The tycoon whose big short bet on nickel helped trigger one of the most dramatic price spikes in history has told his banks and brokers that he doesnt intend to reduce his position, according to people familiar with the matter. 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Tsingshan, who pioneered the Rotary Kiln Electric Furnace (RKEF) process to produce low-cost nickel pig iron (NPI), is now the dominant player in the Indonesian NPI industry and a global leader in NPI processing technology, including having implemented the Argon Oxygen Decarburisation process which incorporates the direct hot charging of NPI into the stainless steel production process for a . Sanctions being implemented by Western powers against Russia over the invasion of its neighbour raised immediate concerns over the global supply of nickel, a metal that is primarily used around the world to make stainless steel and batteries and of which Russia accounts for around 10 percent of global supply. Tsingshan sold 200,000 ton March 2023 contracts at price of $20 per kilo. A week earlier, nickel was trading around $25,000 and the price of the metal has more than quadrupled in a matter of days. Our fundamental responsibility is market stability, he told Bloomberg TV. Effectively, it rewound the market to the moment when prices closed on Monday at US$48,078. When it was flying towards US$100,000, you could feel the damage, and you knew companies were fighting for their existence, says John Browning, founding partner of brokerage Bands Financial Ltd. and a former LME board member. The first source said that the banks could potentially earn money on a bridge loan secured by future nickel production if Tsingshan paid them back over time as it produced nickel. . Terms & Conditions Finance Publishing And never trade money that you cannot afford to lose. Traders must deposit cash, known as margin, with their brokers on a regular basis to cover potential losses on their positions. It granted extra time on March 7th to CCBI Global, a Chinese broker for Tsingshan that is a member of the LME, to raise funds from its state-owned parent, China Construction Bank, to cover. The fallout was immediate. By early this year, it had taken ownership of more than half of the available nickel in LME warehouses. Known as Big Shot in China for his imposing presence in the metal industry, Xiang Guangda, the founder of the worlds biggest nickel and stainless-steel firm, Tsingshan, had amassed a short position of more than 150,000 tonnes of nickel, which was about five times the volume of the metal held by the LME and equivalent to approximately one-eighth of all of the LMEs outstanding contracts at its peak. By April, nickel prices began to fall below $35,000/tonne and Tsingshan began to close its short positions and settled its margin calls. The Chinese nickel tycoon whose big short position caused chaos reached a deal with his banks to avoid further margin calls, marking a key step toward restoring stability to the market after an unprecedented squeeze. It said the banks agreed not to make margin calls or close out their positions against Tsingshan while the company is resolving its nickel margin and settlement requirements. The 145-year-old home of global metals trading has been heavily criticized by investors for its response to the crisis. The price continued to climb higher as one of the world's largest nickel producers, Russia decided to invade Ukraine. But nothing could prepare the market for what was about to follow, with the Russia-Ukraine conflict sending prices skywards on global supply concerns. Tsingshan has been finding it difficult to pay margin calls to its creditors, the report said. As such, if Tsingshan can weather the losses on its LME positions, the higher prices could yet benefit its core business of producing nickel and stainless steel. Now, the traders watched with a mixture of horror and grim fascination as the price went vertical. The fear was that Tsingshan could not make its margin calls, interim payments to parties on the other side of the trade. It could be even larger than that when positions taken through intermediaries are taken into account, people separately said. The LMEs special committee held another call at about 6 a.m. Now they recognized that they had tosuspend trading. 2023 Capital Com Online Investments Ltd. A short position is created when a trader sells a security he does not own, with the intention of repurchasing it later at a lower price. Copyright | Just after 6 a.m., the price of nickel passed US$100,000 a ton. At $2,250 a tonne, the capital required on 300,000 tonnes of nickel would be $675 million, according to Reuters calculations. Some have also warned that much of the chaos in the nickel market may not be over yet. read more. For the LME to cancel nickel trades between willing buyers and sellers is unforgiveable. The tightness in the market had been exacerbated by the presence of an unidentified trader who, according to exchange data, controlled somewhere between 50 per cent and 80 per cent of nickel warehouse warrants monitored by the LME as of last month. Many producers, traders, and users of nickel with short positions on the LME were facing margin calls many times larger than they were prepared for. Its unclear whether he will get his way. The super spike was driven by holders of short positions, including Tsingshan and its brokers, rushing to close them out. LONDON, March 14 (Reuters) - China's Tsingshan Holding Group has reached an agreement with banks under which they will not make margin calls on or close out the producer's nickel positions on the London Metal Exchange (LME), the company said on Monday, a move sources said should help calm the market. On February 22, 2023, Yangjiang News, at the "New Track, Great Future--Qingshan S32001 Duplex Steel Channel Market Launch Conference" hosted by Qingyi Steel They held a hurried call on Monday evening, but decided to allow the nickel market to continue trading. This was the most disorderly move in a metal Ive seen in my career, says Mark Hansen, chief executive officer of trading house Concord Resources Ltd. We had a frenzy based on speculation that accelerated on Monday and Tuesday. Nickel rocketed to a record high above $US100,000 a tonne on Tuesday, driven in part by Tsingshan and its brokers activity, before trading was suspended. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. A stressful week in markets got even worse for some metals traders when the main exchange's software misfired by generating erroneous margin calls, adding to the chaos at a time when brokers . The industry leader for online information for tax, accounting and finance professionals. And once again, this short squeeze racked up billions in losses for those involved. Founded back in 1877 and now owned by Hong Kong Exchanges & Clearing (HKEX), the LME performs a critical role in determining benchmark prices for the global metals industry and provides a liquid market venue for financial institutions to make money. (Podcast). This market frenzy all came to a head on March 8, when the LMEhaving allowed nickel prices to surge by around 250 percent in just a couple of days and reach an all-time high of $101,365/metric tonne (mt) in intra-day trading, which was more than double the $48,078/mt at which it closed the previous daysuspended all trading of nickel. Neither party seems very keen on this idea, however. At the current price of nickel, the brokers themselves wouldnt be able to pay their margin calls, they told the LME. Comparable-store sales rose 19.3% in fiscal 2020 and grew another 14.4% year over year in the first nine months of 2021. Given our role in supervising the LME, we have been, and will continue to be, taking a very close interest in how it is managing and responding to the issues, the FCA confirmed in late March. The three-month LME nickel prices hit an intra-day high at $101,365 a metric tonne on 8 March 2022. The Morowali park mainly produces nickel pig iron for stainless steel. 3.1 What is the margin call to Tsingshan? You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Nickel short interest was created by Tsingshan. Several large brokers got margin calls of close to US$1 billion each over the course of the day. Nickels 250 per cent price spike in little more than 24 hours plunged the industry into chaos, triggering billions of dollars in losses for traders who bet the wrong way and leading the London Metal Exchange to suspend trading for the first time in three decades. On this day, however, metal traders across the city were glued to a screen, watching the price action on the electronic market, which was already open to accommodate Asian trading. Four or five of the brokerages that are LME members would have failed, a shock that could have devastated the global metals industry. Only you can decide whether nickel is a good buy or not. This copy is for your personal, non-commercial use only. Nickel trading resumed on 16 March 2022. He draws a comparison with Silver Thursday, the day in 1980 when an attempt bythe Hunt brothersto corner the silver market came unstuck. LONDON, March 8 (Reuters) - China's Tsingshan Holding Group bought large amounts of nickel to reduce its short bets on the metal and its exposure to costly margin calls, turbocharging a. About 50,000 tonnes of Xiang's total nickel short position of over 150,000 tonnes is held through an over-the-counter position with JP Morgan, which means Tsingshan owed the bank about US$1 . At 1 a.m. on Tuesday, the market opened. Tsingshan has secured credit promises from banks including JPMorgan Chase & Co. and China Construction Bank that could allow it to avoid defaulting on its margin calls, Bloomberg reported. The exchange then retroactively wiped out $3.9 billion worth of transactions made before the suspension to demonstrate that nickel prices had stopped reflecting the underlying physical market. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. And when those wagers move violently in the opposite direction, they can be hit with huge margin calls, or requests to put down more cash to back their trades. Its participants are a mix of the industrial metals companies, which tap the market to offset their price risks, and hedge funds, which use it to speculate. [2] It moved into the Indonesian nickel industry in 2009. Last chance for up to $40 off TurboTax, All Jeans + Pants 25% off! See here for a complete list of exchanges and delays. read more. Perhaps whats most surprising is that this nickel squeeze happened within a market that had, for the last few years, been comparatively sedate, with rangebound trading rarely breaking above the $20,000/metric tonne (mt) mark on the upside before 2022. Tsingshan thus desperately scrambled to buy nickel to cover its short position, which only added further upward pressure on prices. However, the short position holders have to pay a margin. The LME at the end of the day is a physical metal market, he says. Nickel prices trading on the London Metal Exchange (LME) has fallen significantly over the past few months as restrictions cooled the turbulent market, pulling the metal down from its record high of above $100,000 a tonne on 8 March. Bloomberg: Balance of Power focuses on the politics and policiesbeing shaped by the agenda of President Biden's administration. Tsingshan's difficulties in paying its margin calls, and the company's ongoing bailout negotiations, have put its banks and brokers in a bind, as they have had to make hefty margin calls of their own at the LME to cover their short positions on the exchange. Those past scandals forced reforms on the exchange. One thing is sure: If Xiang can weather the storm, Tsingshans nickel producing assets stand to benefit from the higher prices, offsetting losses from the short. The move is a characteristic display of self-confidence from Xiang Guangda, the owner of Tsingshan Holding Group Co., and means that the nickel market could be set for more fireworks once it reopens. Yet the day before, the market had started to unravel, with prices rising by astunning66 per cent to US$48,078. China's Tsingshan Holding Group has reached agreements with two companies to swap its . read more. One of the world's biggest nickel and stainless steel producers, Tsingshan started building a short position -- a wager that prices will fall -- in the nickel market last year. Tsingshan was unable meet margin calls and only avoided bankruptcy after . This will allow the trader to buy the security back at a lower price, return it to the lender and hopefully pocket a handsome profit. Chinese metal giant Tsingshan Holding Group Ltd., caught in a massive short squeeze amid an unprecedented rally in the price of nickel, reached a deal with banks to avoid further margin calls.. Tsingshan, one of the world's biggest nickel and stainless steel producers, worked out a standstill arrangement with a consortium of hedge bank creditors that will allow the company to continue . articles a month for anyone to read, even non-subscribers! Most analysts sided with Xiang, at least in the medium term, believing that nickel productionled by Tsingshan and its competitors in Indonesiawould outpace demand. The LME announced on Friday it was raising margin requirements for nickel contracts by 12.5% to $2,250 a tonne. Despite that, reserves that can be economically mined are limited. Our Standards: The Thomson Reuters Trust Principles. LME brokers and their clients were hit with margin call after margin call. How to Geta Free Flight to Hong Kong in 500,000 Airline Ticket Giveaway, Apple Suppliers Are Racing to Exit China, AirPods Maker Says, Stocks, Bonds Drop as Traders Weigh Data, Fedspeak: Markets Wrap, Microsoft Expands Game Pass as Regulators Fret Over Activision Deal, Cash Is Paying More Than Traditional Stock-Bond Portfolio. For most of the past decade, theyd traded between US$10,000 and US$20,000. The price move on March 8 created a systemic risk to the market, the LME said two days later. In late February and early March, Tsingshan, which had sales of 352 billion yuan ($56 billion) last year, paid its margin calls on time. Bloomberg News' Joe Deaux reports. The company had a further 120,000 tons or more in short positions off the exchange, in bilateral deals with such banks as JPMorgan Chase & Co. and Standard Chartered Plc. During the standstill agreement, the company and banks will discuss a standby secured liquidity facility, Tsingshan said. Short-covering trades made last week by the Chinese billionaire contributed to a swift, huge surge. Tsingshans were even larger, numbering roughly US$3 billion, according to a Bloomberg calculation based on the companys total short positionwhich, even after Xiang had closed out a portion of the bet in previous weeks, was over 150,000 tons. The metals industry, financial regulators and Chinese officials rushed to resolve a crisis in Londons nickel market, which remained on ice after an ill-fated trade sparked mammoth price gains and billions of dollars of losses. By now, the entire nickel industry was in crisis. China's Tsingshan Holding Group bought large amounts of nickel to reduce its short bets on the metal and its exposure to costly margin calls, turbocharging a record rally fuelled by the conflict . Assessing the Incremental Costs of Regulation and Supervision Faced by EU Banks Compared to Their US Peers, Interview with Mr. lvaro Saboro, Chief Executive Officer, Grupo Financiero BCT. FY18 RESULTS, FY19 GUIDANCE AND CORPORATE PRESENTATION 22 AUGUST 2018 AGENDA Results Guidance Corporate Operations Growth Exploration Nickel Market DISCLAIMER AND FORWARD If nickel prices stay lofty it could complicate the energy transition with electric vehicle batteries costing more to produce. Tsingshan, among other Chinese companies, is ramping up a wave of new battery-grade nickel capacity in Indonesia. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Some hedge funds were buying nickel contracts in a bet on the electric vehicle boom. The creditors involved include both local and intentional banks, including J.P. Morgan and China Construction Bank . Still, contracts on the LME are backed by physical metal in a network of warehouses around the world, providing a direct link with the real-world metals industry. Most market participants expect nickel prices to come back down once the crisis around Xiangs position has been resolved. Tsingshan was betting that nickel prices would slump but instead they staged an unprecedented rally amid severe economic sanctions against Russia, a major global producer of the metal, over its invasion of Ukraine. As with similar short squeezes of the past, such as those involving GameStop and Volkswagen, a short squeeze occurs when a market participant borrows a certain volume of a security and sells it, hoping that its price will fall. An employee. For non-personal use or to order multiple copies, please contact Why? The Chinese government may also play a role. It marked the first major market failure sinceRussias invasion of Ukrainejolted global markets, showing how the removal of one of the worlds largest exporters of resources from the financial system in the space of weeks is having ripple effects across the world. It's been under growing pressure to meet the payments in recent days, the. Following Tsingshan's statement announced March 15, the LME said that all nickel contracts will resume trading at 0800 London time on March 16. This is lower than Nickel Mines' expected profit margin for nickel in matte at current prices. Trimegah menilai bisa. The simple fact here is that we did not have visibility over the size of the risk, Matthew Chamberlain, the LMEs chief executive, also stated. Moscow's invasion of Ukraine and the west's moves to sanction Russia, a key major supplier, have electrified an already bullish nickel market. The Companys registered office is at Bahamas Financial Centre, 3rd Floor, Shirley and Charlotte Street, P.O. 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