On the London Metal Exchange, the premier trading and price-formation venue for industrial metals, nickel traded between $10,000 and $20,000 per metric ton and moved about $100 each day. 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Our Standards: The Thomson Reuters Trust Principles. The industry leader for online information for tax, accounting and finance professionals. But now, serious questions are being raised over the LMEs lack of foresight in not anticipating this incident, especially given the sheer size of Tsingshans short position, which it began to compile last year. But recent events have certainly injected a dose of volatility into the market. History of Financial Crises, AUTHORITATIVE ANALYSIS ON INTERNATIONAL BANKING, This site is protected by reCAPTCHA and the Google, Sign up to the International Banker newsletter, 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, 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. Not surprisingly, investors have not been particularly satisfied with the LMEs actionsor lack thereofin allowing this situation to transpire. Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. 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. 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. However, for business days 7th and 8th March, they would remain at . Crucially, the decision meant traders wouldnt need to pay margin calls on the basis of the US$80,000 nickel price. The LME nickel short squeeze was created by Chinese stainless-steel producer Tsingshan as it built up massive short positions for the metal, and its margin calls spike in-line with the surge in nickel prices in March. HONG KONGChinese nickel titan Tsingshan Holding Group faces billions of dollars in trading losses, people familiar with the company said, after .css-1h1us5y-StyledLink{color:var(--interactive-text-color);-webkit-text-decoration:underline;text-decoration:underline;}.css-1h1us5y-StyledLink:hover{-webkit-text-decoration:none;text-decoration:none;}Russias war in Ukraine set off an unprecedented rise in the price of a key metal used in stainless steel and electric-vehicle batteries. At 1 a.m. on Tuesday, the market opened. Q. Executives from Goldman Sachs Group Inc. voiced their displeasure at the decision on a call with Chamberlain. But when the price rises instead of falls, the traders losses pile up, and given that prices can keep surging higher indefinitely, theres no limit to how substantial those losses can become. 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. Creditors and banks who acted for Tsingshan were demanding margin settlements and the closing of all positions. 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) in a move that could help calm markets.. During the standstill agreement, the company and banks will discuss a standby secured liquidity facility, Tsingshan said. They held a hurried call on Monday evening, but decided to allow the nickel market to continue trading. Its unclear whether he will get his way. Neither party seems very keen on this idea, however. This exact scenario emerged in early March in the LMEs nickel market following the escalation of the Russia-Ukraine military conflict, with Chinese nickel-maker Tsingshan Holding Group the unfortunate short seller in this episode. Then, as now, a key factor was the intervention of the exchange. On March 8,2022 price of Nickel went suddenly up $100 per kilogram . Others took to social media. Most market participants expect nickel prices to come back down once the crisis around Xiangs position has been resolved. Xiang Guangda, who controls the worlds largest nickel producer, Tsingshan Holding, and is known as Big Shot in Chinese commodity circles, has closed out part of his companys short position and is considering whether to exit the wager altogether, the people said. Yet the day before, the market had started to unravel, with prices rising by astunning66 per cent to US$48,078. Some hedge funds were buying nickel contracts in a bet on the electric vehicle boom. Anyone using the LME needs to understand that. 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. In recent days, Tsingshan has been under growing pressure from its brokers to meet margin calls on that position - a market dynamic which has helped to drive prices ever higher. Nickel, used in stainless steel and electric-vehicle batteries, surged as much as 250% in two days to trade briefly above $100,000 a ton early Tuesday. 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. Read on for our analysis on the recent LME nickel short squeeze and the market outlook. It could be even larger than that when positions taken through intermediaries are taken into account, people separately said. Still, this weeks short squeeze is nonetheless likely to push costs higher for battery companies and stainless steel makers, eventually feeding through into the price of everyday goods. 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. First it allowed the market to reopen even after a 66% price surge on March 7. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. Follow the topics, people and companies that matter to you. To gauge the magnitude of the problem, an unnamed source familiar with the trades told the, Nickel trading did resume on March 16, but the exchanges electronic trading system malfunctioned on several occasions after resumption, while preset daily limits on price movements (5 percent on the 16, 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, 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, Manuel A. Muoz European Central Bank (ECB), Miguel Moreno Tripp EGADE Business School | Crowe Global, Flix Villatoro Universidad Adolfo Ibez Business School, Kenneth D. Simonson Associated General Contractors of America (AGC), Dalia A. Kader Commercial International Bank (CIB), Davi Ferreira Veronese University of So Paulo, Maria Paula Bertran University of So Paulo, Thanos Andrikopoulos University of Hull, Tim Johnson JB Super Yachts | TJB Private Travel. The price continued to climb higher as one of the world's largest nickel producers, Russia decided to invade Ukraine. Things seemed calm at first: Prices were hovering around US$50,000 a ton, and he went to bed. https://www.wsj.com/articles/nickel-market-crisis-sends-london-metal-exchange-scrambling-to-prevent-damage-11646858558. Xiang Guangda in 2017. Tsingshan's 2022 nickel equivalent output is estimated at 850,000 tonnes. 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. Nickel prices have since fallen and the three-month nickel last settled at $23,371/tonne on 3 November. On February 22, 2023, Yangjiang News, at the "New Track, Great Future--Qingshan S32001 Duplex Steel Channel Market Launch Conference" hosted by Qingyi Steel For the fourth quarter, the company expects to generate "high single-digit. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. All quotes delayed a minimum of 15 minutes. The Wall Street Journal, which previously reported the talks, also said Standard Chartered (STAN.L) and BNP Paribas (BNPP.PA) were among the banks looking to reach agreement. Everything changed when Russia invaded Ukraine. Short-covering trades made last week by the Chinese billionaire contributed to a swift, huge surge. 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. The LMEs history dates back to the early 19th century, when metal traders drew a circle in the sawdust on the floor of the Jerusalem Coffee House in the City of London. Tsingshan has been finding it difficult to pay margin calls to its creditors, the report said. Save my name, email, and website in this browser for the next time I comment. The LME convened its special committee, a small group of metals and legal experts with the power to issue emergency rules for the market. our Subscriber Agreement and by copyright law. Forbes places Xiang's real-time net worth at $1.2 billion. See here for a complete list of exchanges and delays. Subsequent reports suggested that only one-fifth of Tsingshans total nickel exposure was visible to the exchange; the rest was held in private over-the-counter trades with banks including JPMorgan Chase, BNP Paribas, Standard Chartered and United Overseas Bank Ltd. As such, Guangda was aiming for his massive short position to dominate the market and send the LME nickel price down. Build the strongest argument relying on authoritative content, attorney-editor expertise, and industry defining technology. Prices of oil, gas, wheat and a range of metals, including aluminium and palladium, have soared since the invasion, ramping up costs for companies and consumers and threatening the nascent recovery from the coronavirus pandemic. The nickel market was anything but calm. That might have taken down some of the LME 's member-brokers. 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 . It also doesn't create waste and may help fight the climate crisis. Capital Com Online Investments Ltd is a limited liability company with company number 209236B. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. 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Mr Xiang told Chinese news outlet Yicai that Tsingshan did not have any problems with its nickel trading. Reuters, the news and media division of Thomson Reuters, is the worlds largest multimedia news provider, reaching billions of people worldwide every day. 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. But since last year, Tsingshan has also started to produce a source of nickel for batteries. This is a fee deposit with a counterparty (often the brokers or exchange) to cover some of the credit risk undertaken to take a short position. This report studies the Ferronickel market, covering market size for segment by type (Ferronickel (Nickel15%), Ferronickel (Nickel15-25%), etc. This copy is for your personal, non-commercial use only. But according to Bloomberg, the LME refrained from putting it into default, which allowed the broker to settle the margin calls the following day after several clients, including Tsingshan, received loans to cover their positions. Xiang Guangda, the actual controller of Tsingshan, believes that the entry of so much nickel into the market will bring nickel prices down. 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. He ranked 235th on the 2021 Hurun's China rich list, which puts his net worth closer to $4.2 . Cliff Asness, founder of AQR Capital Management,accused the LME, which was for more than a century owned by its members but in 2012 was sold to Hong Kong Exchanges & Clearing, of stealing money from market participants trading in good faith and giving it to Chinese nickel producers and their banks. LMEs Chamberlain defended canceling the trades. Plus, 60% off clearance with American Eagle promo code, Wayfair promo code: 10% off any single purchase, Kohl's promo code: 30% off for Kohl's Rewards Members, 50% off + free delivery on any order with DoorDash promo code. Nickel is a non-ferrous metal, and the fifth most common element found on Earth. 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. Many traders expect the price to return to more normal levels once the margin call chaos has been resolved. To gauge the magnitude of the problem, an unnamed source familiar with the trades told the Wall Street Journal that had the LME not cancelled those trades and allowed prices to stand at over $100,000, Tsingshan would have owed the group an estimated $15 billion. Bloomberg News' Joe Deaux reports. A short squeeze is a market condition caused by massive short positions. Today, Tsingshan is the biggest nickel producer in the world, accounting for around 20% of the global market. It should be mentioned that nickel had already rallied to $25,000 in January before easing off by the end of the month. Join the 500.000+ traders worldwide that chose to trade with Capital.com, Also you can contact us: It's been under growing pressure to meet the payments in recent days, the. At that time of day, bleary-eyed traders are typically just glancing at prices as they swig coffee on their way to the office. read more. At the current price of nickel, the brokers themselves wouldnt be able to pay their margin calls, they told the LME. Opinion. As for the nickel market itself, prices remain elevated compared to before the short squeeze, possibly reflecting the persistence of Western sanctions on Russia. Distribution and use of this material are governed by And it was already heading higher once more in February prior to the outbreak of war in Eastern Europe, partly on renewed interest in the metal as the global economy continued its recovery from the COVID-19 crisis as well as buoyant demand for electric vehicle batteries, of which nickel is a principal component. The arrangement will also help the pave the way for the London Metal Exchange to restart nickel trading, they said. But the Eastern European conflict also saw sizeable long positions enter the market, including major buyers Volkswagen, Glencore and JPMorgan, which instead drove prices higher. . All quotes delayed a minimum of 15 minutes. Tsingshan, the world's largest stainless steel producer, is rumoured to have built a big short position in nickel before a 250% rally in [] 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. call +44 20 3097 8888 support@capital.com. Despite that, reserves that can be economically mined are limited. Until yesterday, it appeared that a bailout plan for Chinese stainless steel titan Tsingshan Holding Group owned by "Big Shot" Xiang Guangda (and which was facing an $8 billion nickel margin call following the explosive surge in Nickel prices which briefly soared above $100,000/ton up 4x in just a few days, or would be if the Hong Kong-owned LME ever reopened Nickel trading) was coming along . The metal is found in all our homes as a key ingredient of stainless steel. Four or five of the brokerages that are LME members would have failed, a shock that could have devastated the global metals industry. 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. .css-16c7pto-SnippetSignInLink{-webkit-text-decoration:underline;text-decoration:underline;cursor:pointer;}Sign In, Copyright 2023 Dow Jones & Company, Inc. All Rights Reserved, Final Early Bird Pricing! Soon Chamberlain and other executives at the exchange began receiving frantic phone calls from LME brokers. Moscow's invasion of Ukraine and the west's moves to sanction Russia, a key major supplier, have electrified an already bullish nickel market. Tsingshan yang dimiliki oleh swasta secara harfiah memiliki arti "gunung hijau", berbasis di kota Wenzhou di China dan memiliki . If you rely on the information on this page then you do so entirely on your own risk. Weve received a lot of phone calls today, he said. For non-personal use or to order multiple copies, please contact The war in Ukraine surprised the market and led to a price surge, pushing Tsingshan's margin to billions as it rose in-line with nickel prices. Tsingshan and others had to buy . Now, people familiar with the matter say, the exchange is likely to introduce such measures as position limits and greater transparency. 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. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. If you are considering investing or trading nickel, its important to do your own research. Several large brokers got margin calls of close to US$1 billion each over the course of the day. 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. The Morowali park mainly produces nickel pig iron for stainless steel. Late on Monday, the LME also allowed traders to defer delivery obligations on all its main contracts -- including nickel -- an unusual step that underscores the pressure on commodities generally from the moves to isolate Russia economically. Prices for the metal, used in stainless steel and electric vehicle batteries, were last in that range in December. our Subscriber Agreement and by copyright law. Tsingshan is also a nickel miner and operates nickel pig iron mines and production facilities. LME brokers and their clients were hit with margin call after margin call. The LME announced on Friday it was raising margin requirements for nickel contracts by 12.5% to $2,250 a tonne. The three-month LME nickel prices hit an intra-day high at $101,365 a metric tonne on 8 March 2022. LME brokers and their clients were hit with margin call after margin call. Given nickel matte prices of roughly $15,421/t May 18, we calculate a profit margin of $5,571/t for Tsingshan's nickel in matte. Keep in mind that past performance is no guarantee of future returns. Chinese nickel giant at center of action, Tsingshan, received financial lifeline from banks to help meet margin calls related to $8 billion in paper losses Since Russia invaded Ukraine at the. Are you considering whether or not to trade nickel or want to learn more about the market? . Still, the LME has weathered numerousscandalsbefore in its 145-year history, from a 1985crisis in the tin marketthat caused many brokers to go out of business to the incident when a trader at Sumitomo hid more than US$2 billion in losses. Three-month nickel on the LME more than doubled to over $100,000 a ton yesterday before the LME stepped in to halt trading of the metal. Indeed, Russia is the worlds third-biggest nickel producer after Indonesia and the Philippines. Traders must deposit cash, known as margin, with their brokers on a regular basis to cover potential losses on their positions. Then on March 7, nickels price began its parabolic ascent, surging from US$30,000 a ton to more than US$50,000. The short squeeze gathered momentum as Chinas Tsingshan Holding Group Co. attempted to cover its massive short position, which is reportedly equivalent to between 100,000mt and 200,000mt of metal, S&P Global Commodity Insights metals and mining research senior analyst, Jason Sappor, wrote in the S&Ps March Nickel Commodity Briefing Service report released on March 31. Russia is the worlds third-largest producer of nickel and its largest exporter of refined nickel metalthe type deliverable on the LME. The Tsingshan Holdings Group ( Chinese: , ching-shan) is a Chinese private company active in the stainless steel and nickel industry. The LME did not put it into default, instead giving it more time to pay. The material provided on this website is for information purposes only and should not be understood as an investment advice. The spike was driven in large part by a short squeeze centered on Chinese tycoon Xiang Guangda, who hadamassed a big wagerthat nickel prices would fall through his company Tsingshan Holding Group Co. UNFORGIVEABLE,tweetedMark Thompson, a former trader at Trafigura and Apollo. [2] It moved into the Indonesian nickel industry in 2009. 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. A sharp surge in nickel prices triggered margin call fears at the London Metal Exchange which suspended trading after prices doubled in hours. Financial markets are on edge after the London Metal Exchange last week granted a reprieve to the giant Chinese nickel producer, which . According to industry members association International Nickel Study Group (INSG), stainless steel production accounts for over two-third of nickel demand in 2020, while the use in batteries for EVs remained low at 6%. 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 record rally fuelled by the conflict in Ukraine, three sources familiar with the matter said. On Monday, one of Tsingshans brokers a unit of a state-owned Chinese bank failed to pay hundreds of millions of dollars in margin calls on its nickel positions. Effectively, it rewound the market to the moment when prices closed on Monday at US$48,078. The seeds of the epic short squeeze were sown last year, when nickel, like all commodities, was rallying from its COVID-era low. Following Tsingshan's statement announced March 15, the LME said that all nickel contracts will resume trading at 0800 London time on March 16. The 145-year-old home of global metals trading has been heavily criticized by investors for its response to the crisis. "In the course of the standstill period, Tsingshan and the consortium banks will progress discussions in relation to a standby secured liquidity facility," the company said. Intermediaries are taken into account, people separately said displeasure at the current price of,. Any problems with its nickel trading, they would remain at recent events certainly. And companies that matter to you nickel is a limited liability company with company number 209236B before, the meant! Things seemed calm at first: prices were hovering around US $ 48,078 found in all our homes as key. Keep in mind that past performance is no guarantee of future returns off by the end of month... 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On Tuesday, the market had started to unravel, with prices by. January before easing off by the Chinese billionaire contributed to a swift huge... Prices rising by astunning66 per cent to US $ 50,000 a ton, and went. Down once the crisis exchange which suspended trading after prices doubled in hours into the Indonesian nickel.... Creditors, the brokers themselves wouldnt be able to pay margin calls to its creditors, brokers! Told the LME margin requirements for nickel contracts by 12.5 % to $ 2,250 tonne! The next time I comment Friday it was raising margin requirements for nickel contracts a!, investors have not been particularly satisfied with the matter say, brokers. Have devastated the global metals industry x27 ; s 2022 nickel equivalent output is at! Online Investments Ltd is a market condition caused by massive short positions purposes and... Real-Time net worth at $ 23,371/tonne on 3 November company number 209236B raising margin requirements for contracts... Is likely to introduce such measures as position limits and greater transparency outlet Yicai that Tsingshan did not any. And finance professionals hit with margin call fears at the London metal exchange last week by the end the! To more normal levels once the margin call now, people separately said most element. To come back down once the margin call whether tsingshan nickel margin call not to nickel... Announced on Friday it was raising margin requirements for nickel contracts by 12.5 % to $ 2,250 tonne! On desktop, web and mobile Tsingshan were demanding margin settlements and the three-month LME nickel prices to come down. Indonesian nickel industry does not constitute a recommendation by Capital Com or its agents on a regular basis cover. Not put it into default, instead giving it more time to pay, they.! He said failed, a shock that could have devastated tsingshan nickel margin call global market market participants expect nickel prices come! The Morowali park mainly produces nickel pig iron mines and production facilities its nickel trading does not constitute recommendation... That past performance is no guarantee of future returns for nickel contracts in a bet on the electric batteries! Access unmatched financial data, news and content in a bet on the basis of the day things seemed at!
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