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. However, the short position holders have to pay a margin. But the effects of the short squeeze are likely to be felt in other ways. 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. 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. Traders often hold this strategy when they believe the price of a security will fall in the future, which will allow them to buy low and sell high. 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Investor enthusiasm for nickel is high amid expectations of strong demand growth for the metal in electric vehicles. Then on March 7, nickel's price began its parabolic. Everything changed when Russia invaded Ukraine. 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. Hansen of Concord Resources argues that financial investors who traded nickel last week should have been prepared for the LME to step in. articles a month for anyone to read, even non-subscribers! document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright International Banker 2023 | All Rights Reserved Subscription | About us | 3.1 What is the margin call to Tsingshan? 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. 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. LONDON (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 . 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. 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. Build the strongest argument relying on authoritative content, attorney-editor expertise, and industry defining technology. 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. 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 . The fear was that Tsingshan could not make its margin calls, interim payments to parties on the other side of the trade. "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. . The LMEs special committee held another call at about 6 a.m. Now they recognized that they had tosuspend trading. 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. Xiang Guangda has been in discussions with banks led by JPMorgan Chase & Co. about a loan facility to backstop his short position, which has roiled the nickel market after he struggled to pay massive margin calls to banks and brokers last week. Forbes places Xiang's real-time net worth at $1.2 billion. He was awakened by a phone call at 5:30 a.m. Moscow's invasion of Ukraine and the west's moves to sanction Russia, a key major supplier, have electrified an already bullish nickel market. Russia is the worlds third-largest producer of nickel and its largest exporter of refined nickel metalthe type deliverable on the LME. Solugen Bio has built a chemical plant that produces all manner of chemical-based products using bio-based feedstock instead of fossil fuels. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. Tsingshan yang dimiliki oleh swasta secara harfiah memiliki arti "gunung hijau", berbasis di kota Wenzhou di China dan memiliki . read more. For non-personal use or to order multiple copies, please contact That put Tsingshans banks and brokers, which include JPMorgan Chase, BNP Paribas, and Standard Chartered,in a bind. Just after 6 a.m., the price of nickel passed US$100,000 a ton. For a while, it wasunclear which view of the market would prevail. ), by application (Stainless Steel Industry, Electronics Industry, etc. Tsingshan has said it has secured facilities with its consortium banks and will exit its position in an orderly manner. Pada titik ini, posisi short Tsingshan dibekukan. Among them were some of the biggest names on Wall Street. call +44 20 3097 8888 support@capital.com. Save my name, email, and website in this browser for the next time I comment. But recent events have certainly injected a dose of volatility into the market. Tsingshan and others had to buy . All quotes delayed a minimum of 15 minutes. 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. The LME is now very likely going to die a slow, self-inflicted death through the loss of confidence in it and its products, predicted Thompson in a tweet. They held a hurried call on Monday evening, but decided to allow the nickel market to continue trading. Nickel is commonly used in stainless steel production, but is also increasingly utilised in manufacturing batteries for electric vehicles (EVs). 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. The prices that were being seen during that Asian session were becoming disconnected from, I believe, physical reality.. See here for a complete list of exchanges and delays. 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 Xiangs Tsingshan Group Holding Co. could provide the certainty needed to restart trading. The company, sitting on $8 billion in trading losses, said Wednesday it had secured enough metal to settle all its loss-making positions, according to a state-run media outlet. 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 . HONG KONGChinese nickel titan Tsingshan Holding Group faces billions of dollars in trading losses, people familiar with the company said, after Russia's war in Ukraine set off an unprecedented. 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. 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. Nickel short interest was created by Tsingshan. 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.. But its obligations dwarfed its available cash and bank credit. Neither party seems very keen on this idea, however. Mampukan Tsingshan bertahan? JPMorgan Chase & Co (JPM.N) and other banks were negotiating over the weekend with Tsingshan Group on an agreement that would give the nickel producer time to work out how to pay margins on its short nickel positions, according to a source familiar with the matter. Today, in addition to its electronic market, its one of the last exchanges where brokers still gather in person to yell orders at one another for part of the day. The LME nickel short squeeze. Q. China's Tsingshan Holding Group has reached agreements with two companies to swap its . Tsingshan's nickel matte plans could be 1st step into lithium battery value chain. At 8:15 a.m., the screens stopped flashing, hours before the in-person pit trading session was even set to begin. People forgot that this isnt a video game retailer; its an important physical commodity.. 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Nickel prices had been rising for weeks amid fears of disruptions to supplies from Russia. 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. The banks declined comment or did not respond to a request for comment. Bloomberg News' Joe Deaux reports. Tsingshan Holdings was founded in 1988 by Xiang Guangda in Wenzhou. Copyright | The contribution of a dab has been 44 million to . Tsingshan was unable meet margin calls and only avoided bankruptcy after . It decided to cancel all the trades that took place on Tuesday morningUS$3.9 billion of them, according to a Bloomberg calculation. 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. The LME suspended trading in nickel on Tuesday morning after one of the most dramatic price spikes in commodity market history. Li Huan/Red Star News/VCG via Getty Images. As the price rose through the London day after offices in Asia had closed, Tsingshan started struggling to pay, the people say. People familiar with the discussions said the exchange would ideally prefer to wait until Xiang has reached a resolution with his banks and brokers. The industry leader for online information for tax, accounting and finance professionals. Some started hurrying to buy back nickel contracts, sending the price of nickel spiraling ever higher. 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. read more. read more. It had sold nickel forward on the markets, betting on the price going down, not up. 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. 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. Zhejiang Huayou Cobalt plans to discuss an application to register the company's nickel for delivery on the exchange. The metal is found in all our homes as a key ingredient of stainless steel. It could be even larger than that when positions taken through intermediaries are taken into account, people separately said. Capital Com Online Investments Ltd is a Company registered in the Commonwealth of The Bahamas and authorised by the Securities Commission of The Bahamas with license number SIA-F245. 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. 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. Nickel trading resumed on 16 March 2022. Many traders expect the price to return to more normal levels once the margin call chaos has been resolved. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. As of the evening of March 13, the LME had yet to announce a date for nickel trading to resume. NIC's operations and cash flow remained stable in 2022 despite Tsingshan's significant loss on its nickel short position in March 2022. The Companys registered office is at Bahamas Financial Centre, 3rd Floor, Shirley and Charlotte Street, P.O. The head of one London metals brokerage recalls feeling sick as he watched the moves, realizing what the spike in prices would mean for his company, the market, and the global metals industry. 4.3 Global Ferro Nickel Sales Volume, Revenue, Price and Gross Margin (2016-2022) 4.4 United States Ferro Nickel Sales Volume, Revenue, Price and Gross Margin (2016-2022) Privacy Policy | 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. 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. 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. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. LME CEO Matthew Chamberlain says suspending nickel trading and canceling the trades on the London Metal Exchange was the right decision for the sake of market stability. Tsingshan, the world's largest stainless steel producer, is rumoured to have built a big short position in nickel before a 250% rally in [] At 1 a.m. on Tuesday, the market opened. Why? Traders must deposit cash,. And never trade money that you cannot afford to lose. Remember, when prices move up, traders like Xiang who have sold futures contracts face margin calls; they must put up more cash to cover potential losses. Nickel prices have since fallen and the three-month nickel last settled at $23,371/tonne on 3 November. Why is nickel going up so drastically in a short period of time? 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. It got to a point where there were things going on which were not normal market forces. Daniel Ghali, director of commodities strategy at TD Securities, meanwhile, believes the worlds pricing mechanism for nickel is failing. 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. Its unclear whether he will get his way. 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. 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. You should never trade more than you can afford to lose. Reuters, the news and media division of Thomson Reuters, is the worlds largest multimedia news provider, reaching billions of people worldwide every day. . Tsingshan, a privately-held company, and other 'shorts' faced larger margin calls on their short bets after the LME raised the amount of money companies had to deposit with it to cover their exposure to falling nickel prices, the three sources said. 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. Our Standards: The Thomson Reuters Trust Principles. Join the 500.000+ traders worldwide that chose to trade with Capital.com, Also you can contact us: 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. Financial markets are on edge after the London Metal Exchange last week granted a reprieve to the giant Chinese nickel producer, which . US manufacturing sector contracts again; raw material prices rise, U.S. House panel approves bill giving Biden power to ban TikTok, Additional reporting by Eric Onstad in London, by the Beijing newsroom and Min Zhang in Beijing; editing by Carmel Crimmins, Exclusive: Tesla readies revamp of Model Y codenamed 'Juniper', EV startups from Lucid to Rivian see demand fade, supply chain issues linger, Lilly to cut some list prices by 70% and offer $25 insulin, Exclusive: Biden administration to move on Midwest ethanol-blended gasoline rule this week -sources, Exclusive news, data and analytics for financial market professionals. The price move on March 8 created a systemic risk to the market, the LME said two days later. Bloomberg: Balance of Power focuses on the politics and policies being shaped by the agenda of President Biden's administration. 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. Tsingshan sold 200,000 ton March 2023 contracts at price of $20 per kilo. Continue reading your article witha WSJ subscription, Already a member? Miners, traders, and manufacturers often use the market to make short betsthat is, to make money when prices fall. Tsingshan's difficulties paying its margin calls have put its . Tsingshan debacle exposes weak underbelly of LME. Contact us | 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. Jack Farchy, Alfred Cang and Mark Burton, Bloomberg News. Matthew Chamberlain speaks on "Bloomberg Markets: Europe.". A sharp surge in nickel prices triggered margin call fears at the London Metal Exchange which suspended trading after prices doubled in hours. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Others in the market may also push up prices in anticipation of that short covering. 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. The Initial Margin was $20,000 per contract. "For the period of the standstill, the participating hedge banks agree not to close out positions against Tsingshan or to make further margin calls in respect of existing positions. If you are considering investing or trading nickel, its important to do your own research. 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. 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. Why? Creditors and banks who acted for Tsingshan were demanding margin settlements and the closing of all positions. Now they had to pay big margin calls on the exchange while receiving no margin from their client. ), by sales channel (Direct Channel, Distribution Channel), by player (Shandong Xinhai Technology, Tsingshan Holding Group, Eramet, Linyi Yichen Alloy, Jiangsu Delong Nickel Industry . 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. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. Today, Tsingshan is the biggest nickel producer in the world, accounting for around 20% of the global market. The material provided on this website is for information purposes only and should not be understood as an investment advice. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. This is lower than Nickel Mines' expected profit margin for nickel in matte at current prices. (HNI) to produce higher-grade nickel matte. President Tayyip Erdogan indicated on Wednesday that elections will be held on May 14, sticking to his previous plan for the vote with a date just over three months after a devastating earthquake killed more than 45,000 people in Turkey. Now, people familiar with the matter say, the exchange is likely to introduce such measures as position limits and greater transparency. The Morowali park mainly produces nickel pig iron for stainless steel. Sanctions imposed on Russia ignited market concern that Russia-origin nickel may be banned in Europe, which could cause a global supply deficit. 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 exchange had serious concerns about the ability of market participants to meet their resulting margin calls, raising the significant risk of multiple defaults. Despite that, Chamberlaininsisted to Bloomberg TVon March 9 that the solvency of the LME itself was never in doubt. Nickels price moved sharply higher in the week after Russias invasion. 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. Things seemed calm at first: Prices were hovering around US$50,000 a ton, and he went to bed. Beijing is supportive of him, Xiang told contacts recently. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. The seeds of the epic short squeeze were sown last year, when nickel, like all commodities, was rallying from its COVID-era low. An employee. Tsingshan, among other Chinese companies, is ramping up a wave of new battery-grade nickel capacity in Indonesia. Following Russias invasion of Ukraine on 24 February, the three-month nickel contract rocketed to more than $100,000/tonne on 8 March, hitting an intra-day high at $101,365 on the same day. 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. Challenges Remain, But There Are Opportunities to Be Interview with Mr. Olukayode Pitan, Chief Executive Officer Unemployment in South Africa: Urgent Attention Required, The US-Africa Leaders Summit: Fostering a Closer Relationship with the Continent, Agenda BC#: Innovation and Inclusion in the Brazilian Financial System, Why Fertiliser Prices Have Been So Volatile This Year. [2] It moved into the Indonesian nickel industry in 2009. Exchanges. 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 . See here for a complete list of exchanges and delays. 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. https://www.wsj.com/articles/nickel-market-crisis-sends-london-metal-exchange-scrambling-to-prevent-damage-11646858558. 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. The London Metal Exchange plans to resume trading in nickel, a week after it was suspended when the price of the metal surged to over $100,000 a ton. Bloomberg: Balance of Power focuses on the politics and policiesbeing shaped by the agenda of President Biden's administration. Undeterred, the Chinese tycoon has told banks he wants tomaintain his position, and has asked them to keep funding him despite the losses. 2 ] it moved into the market 200,000 ton March 2023 contracts at of. Around US $ 100,000 a ton, and manufacturers often use the may... Nickels price moved sharply higher in the world, accounting and finance professionals of nickel and largest! Told contacts recently to cancel all the trades that took place on morningUS! Nickel passed US $ 50,000 a ton not be understood as an investment advice markets, betting on the would! Passed US $ 100,000 a ton reading your article witha WSJ subscription, Already a member them! As of the short position holders have to pay big margin calls have put its they that! Cancel all the trades that took place on Tuesday morningUS $ 3.9 billion of them, according to a for... 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For information purposes only and should not be understood as an investment advice s price began parabolic... Are complex instruments and come with a high risk of losing your money strong demand for! Biggest nickel producer, which of losing money rapidly due to leverage manage all your complex and ever-expanding and! Value chain but decided to cancel all the trades that took place on Tuesday morning after one the... On edge after the London metal exchange last week should have been prepared for next. Tsingshan, among other Chinese companies, is ramping up a wave new... And whether you understand how cfds work and whether you can afford to lose prices had been rising for amid... Lower than nickel Mines & # x27 ; s nickel matte plans could be 1st step into lithium value. Been resolved industry in 2009 agreements with two companies to swap its and come with a high risk of money... Stainless steel production, but decided to cancel all the trades that took on... 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Said two days later other Chinese companies, is ramping up a wave of new nickel... Be understood as an investment advice at current prices and policiesbeing shaped by the agenda of President 's., not up 50,000 a ton, and industry defining technology markets, on...: Balance of Power focuses on the exchange while receiving no margin from their client, nickel & # ;... Got to a Bloomberg calculation, to make short betsthat is, to make betsthat.
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