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. 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. LME brokers and their clients were hit with margin call after margin call. Now they had to pay big margin calls on the exchange while receiving no margin from their client. https://www.wsj.com/articles/chinese-nickel-giant-tsingshan-faces-8-billion-trading-loss-as-ukraine-war-upends-market-11646765353. 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. Bloomberg: Balance of Power focuses on the politics and policies being shaped by the agenda of President Biden's administration. This created an unprecedented LME nickel short squeeze. While the exact scale of Mr Xiangs losses is unclear, Tsingshans short position on the London Metal Exchange is in the region of 100,000 tonnes of nickel, people familiar with the matter said. Among them were some of the biggest names on Wall Street. Metal industry sources said that for the duration of the standstill agreement Tsingshan, the world's largest nickel producer, may not have to buy any more metal to cover its short positions. Nickel is commonly used in stainless steel production, but is also increasingly utilised in manufacturing batteries for electric vehicles (EVs). As the price rose through the London day after offices in Asia had closed, Tsingshan started struggling to pay, the people say. But this week the rally became a melt-up, with prices surging as much as 250 per cent in little more than 24 hours, to an all-time high of $US101,365 a tonne. 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. Pleased to report an extremely strong year for the Nickel Industries and the. The LME was forced to suspend nickel trading for the first time since 1988 on March 8 and is trying to facilitate negotiations to net off long and short positions in order to reopen the market. The Tsingshan Holdings Group ( Chinese: , ching-shan) is a Chinese private company active in the stainless steel and nickel industry. Bloomberg: Balance of Power focuses on the politics and policies being shaped by the agenda of President Biden's administration. 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. Trading and mining giant Glencore was the dominant holder of nickel in recent months, according to people familiar with the matter. "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. 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. 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 . Creditors and banks who acted for Tsingshan were demanding margin settlements and the closing of all positions. FY18 RESULTS, FY19 GUIDANCE AND CORPORATE PRESENTATION 22 AUGUST 2018 AGENDA Results Guidance Corporate Operations Growth Exploration Nickel Market DISCLAIMER AND FORWARD Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. Distribution and use of this material are governed by The war in Ukraine surprised the market and led to a price surge, pushing Tsingshans margin to billions as it rose in-line with nickel prices. 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. 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. 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. Xiang shrugged off suggestions to reduce short positions, Tsingshans nickel short position stood at about 150,000 tons. But the effects of the short squeeze are likely to be felt in other ways. China's Tsingshan Holding Group has reached agreements with two companies to swap its . Sanctions imposed on Russia ignited market concern that Russia-origin nickel may be banned in Europe, which could cause a global supply deficit. Keep in mind that past performance is no guarantee of future returns. This weeks spike in prices has played out principally on the LME, and many traders expect the price to return to more normal levels once the margin call chaos has been resolved. Tsingshan's 2022 nickel equivalent output is estimated at 850,000 tonnes. Even at that level, clients of LME brokers had failed to pay some US$500 million of margin calls in relation to their short positions on the exchange, according to a person familiar with the matter. See here for a complete list of exchanges and delays. Nickel prices had been rising for weeks amid fears of disruptions to supplies from Russia. 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. A week earlier, nickel was trading around $25,000 and the price of the metal has more than quadrupled in a matter of days. The Initial Margin was $20,000 per contract. China scoffs at FBI claim that Wuhan lab leak likely caused COVID pandemic, China's abrupt reopening sparks student accommodation crisis in Australia, Reporting by Pratima Desai; additional reporting by Sinead Cruise and Eric Onstad in London; Editing by Megan Davies, Jan Harvey, Tim Ahmann and Cynthia Osterman, U.S. House panel approves bill giving Biden power to ban TikTok, Russia tries to close ring on Bakhmut as Ukrainians mount 'furious resistance', Wall St falls as yields rally on hawkish comments, data, Erdogan indicates Turkey elections to be in May, three months after quake, Massachusetts U.S. Attorney taps ex-DOJ watchdog to defend her in ethics probe, Another BoE rate rise isn't inevitable, Bailey says, China's Xi cements ties with Belarus leader against background of Ukraine war, Russia's Lavrov meets Indian counterpart ahead of G20 talks, Exclusive news, data and analytics for financial market professionals. call +44 20 3097 8888 support@capital.com. 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. The seeds of the epic short squeeze were sown last year, when nickel, like all commodities, was rallying from its COVID-era low. Weda Bay is becoming a very material contributor to the cash flow of ERAMET and it's a fair view of what is the cash the Company can generate. 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. Many traders expect the price to return to more normal levels once the margin call chaos has been resolved. Our fundamental responsibility is market stability, he told Bloomberg TV. Miners, traders, and manufacturers often use the market to make short betsthat is, to make money when prices fall. Credit: INF News.com Massive short positions held by Xiang's Tsingshan Holding Group, the world's largest . Late Tuesday, the exchange said it anticipates trading wont resume before Friday. 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 prices shot up as much as 250% in two days on the LME at the start of this week. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. .css-16c7pto-SnippetSignInLink{-webkit-text-decoration:underline;text-decoration:underline;cursor:pointer;}Sign In, Copyright 2023 Dow Jones & Company, Inc. All Rights Reserved, 50% off + free delivery on any order with DoorDash promo code, Wayfair promo code: 10% off any single purchase, 60% off running shoes and apparel at Nike without a promo code, March Flash Sale: Extra 30% Off w/ Groupon Promo Code. The broker was able to settle the margin calls on Tuesday after several clients, including Tsingshan, got loans to cover their positions, one of the people said. During the standstill agreement, the company and banks will discuss a standby secured liquidity facility, Tsingshan said. Exchanges. 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. Build the strongest argument relying on authoritative content, attorney-editor expertise, and industry defining technology. It also doesn't create waste and may help fight the climate crisis. The LME announced on Friday it was raising margin requirements for nickel contracts by 12.5% to $2,250 a tonne. The current events are unprecedented, LME said in a notice. 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Zhejiang Huayou Cobalt plans to discuss an application to register the company's nickel for delivery on the exchange. In response to the crisis, the LME suspended nickel trading on 8 March and cancelled all trades executed on or after 00:00 UK time on 8 March 2022 in the inter-office market and on LMEselect (LME online trading platform) until further notice.. 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. 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%. Not surprisingly, investors have not been particularly satisfied with the LMEs actionsor lack thereofin allowing this situation to transpire. On 15 March, Tsingshan reached an agreement with a consortium of hedge bank creditors on a standstill arrangement, with provision for the existing hedge positions to be reduced by the Tsingshan group in a fair and orderly manner as abnormal market conditions subside. The Companys registered office is at Bahamas Financial Centre, 3rd Floor, Shirley and Charlotte Street, P.O. In a squeeze, rising prices put traders betting on a drop in an ever-tougher financial position, forcing them or brokers and banks doing business on their behalf to buy the asset, a trade known as short covering that can drive prices even higher. Box N-4865, Nassau, Bahamas. And never trade money that you cannot afford to lose. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. It could be even larger than that when positions taken through intermediaries are taken into account, people separately said. Tsingshan is also NIC's majority shareholder with a 21.15% stake through Shanghai Decent Investment. 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. Those payments have now been made, a person familiar with the matter said on Tuesday. Tsingshan's were even larger, numbering roughly US$3 billion, according to a Bloomberg calculation based on the company's total short positionwhich, even after Xiang . Some started hurrying to buy back nickel contracts, sending the price of nickel spiraling ever higher. 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 . 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. Matthew Chamberlain, the LMEs chief executive officer, had stayed up to watch. Follow the topics, people and companies that matter to you. Its unclear whether he will get his way. 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. The major market events for the week ahead right in your inbox. The London nickel market has been closed since last Tuesday morning, when the exchange intervened after prices spiked as much as 250% in two days, and the standstill announced by Xiang's. 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. At $2,250 a tonne, the capital required on 300,000 tonnes of nickel would be $675 million, according to Reuters calculations. 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 16th, then 8 percent the following day, 12 percent on March 18 and 15 percent from March 21) prevented futures prices from falling sufficiently to levels that would entice buyers to enter the market once more. The annals of commodity markets are full of tales of producers and traders, fromMetallgesellschaftto Sumitomo, that blurred the lines between hedging and speculation and ended with billions of dollars in losses. It decided to cancel all the trades that took place on Tuesday morningUS$3.9 billion of them, according to a Bloomberg calculation. Prices for the metal, used in stainless steel and electric vehicle batteries, were last in that range in December. Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. 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. 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. Tsingshan sold 200,000 ton March 2023 contracts at price of $20 per kilo. 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. People familiar with the discussions said the exchange would ideally prefer to wait until Xiang has reached a resolution with his banks and brokers. While Mark Thompson, executive vice-chairman at mining-development company Tungsten West, tweeted: The LME is now very likely going to die a slow, self-inflicted death through the loss of confidence in it and its products.. Reuters, the news and media division of Thomson Reuters, is the worlds largest multimedia news provider, reaching billions of people worldwide every day. 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. read most from bloomberg . Xiang didnt believe the rally would last. 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. 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. One of the sources said Tsingshan's bets on lower nickel prices had amounted to around 300,000 tonnes at an average price between $18,000 and $19,000 a tonne. Some have also warned that much of the chaos in the nickel market may not be over yet. If you are considering investing or trading nickel, its important to do your own research. He started increasing his short position on the London Metal Exchange. Xiang Guangda -- who controls the world's largest nickel producer, Tsingshan Holding Group Co., and is known as "Big Shot" in Chinese commodity circles -- has closed out part of his company's short position and is considering whether to exit the wager altogether, the people said. Following Tsingshan's statement announced March 15, the LME said that all nickel contracts will resume trading at 0800 London time on March 16. 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. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. Tsingshan has been finding it difficult to pay margin calls to its creditors, the report said. The most notable holder of short positions is Tsingshan Holdings - one of the world's largest nickel and stainless steel producers - which is believed to own positions on about 100,000 tons of nickel with paper losses totaling up to $8 billion before the London Metal Exchange halted trading. By early this year, it had taken ownership of more than half of the available nickel in LME warehouses. Jack Farchy, Alfred Cang and Mark Burton, Bloomberg News. They held a hurried call on Monday evening, but decided to allow the nickel market to continue trading. The price spike left Tsingshan exposed to $8 billion USD of trading losses whilst struggling to meet their margin calls. The LMEs special committee held another call at about 6 a.m. Now they recognized that they had tosuspend trading. 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. our Subscriber Agreement and by copyright law. Reuters, the news and media division of Thomson Reuters, is the worlds largest multimedia news provider, reaching billions of people worldwide every day. Its been under growing pressure to meet the payments in recent days, the people said. 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. Comparable-store sales rose 19.3% in fiscal 2020 and grew another 14.4% year over year in the first nine months of 2021. At that time of day, bleary-eyed traders are typically just glancing at prices as they swig coffee on their way to the office. If you rely on the information on this page then you do so entirely on your own risk. If the market moves against those positions, they receive a margin call requesting further funds and if they fail to pay, they can be forced to close their position. It also doesn't create waste and may help fight the climate crisis. 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. 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. Everything changed when Russia invaded Ukraine. Several large brokers got margin calls of close to US$1 billion each over the course of the day. See here for a complete list of exchanges and delays. News Corp is a global, diversified media and information services company focused on creating and distributing authoritative and engaging content and other products and services. 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