Tsingshan thus desperately scrambled to buy nickel to cover its short position, which only added further upward pressure on prices. 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 . https://www.wsj.com/articles/nickel-market-crisis-sends-london-metal-exchange-scrambling-to-prevent-damage-11646858558. 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 price moves exacerbated the pressure on holders of big short positions, already facing calls to deposit extra funds with brokers, a practice known in financial markets as margin calls. Erin Jonasson. 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 limits also meant that those buyers seeking to unwind their positions had to join a long queue of sellers waiting to complete their transactions. Prices for the metal, used in stainless steel and electric vehicle batteries, were last in that range in December. But its obligations dwarfed its available cash and bank credit. Neither party seems very keen on this idea, however. 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. 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. As of the evening of March 13, the LME had yet to announce a date for nickel trading to resume. Capital Com is an execution-only service provider. 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. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. Our fundamental responsibility is market stability, he told Bloomberg TV. 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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. It could be even larger than that when positions taken through intermediaries are taken into account, people separately said. But since last year, Tsingshan has also started to produce a source of nickel for batteries. Continue reading your article witha WSJ subscription, Already a member? Continue reading your article witha WSJ subscription, Already a member? It was a classic short squeeze, as the pain for Tsingshan, its brokers, and other shorts created a self-reinforcing cycle. LME brokers and their clients were hit with margin call after margin call. 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 sharp increase in nickel prices was driven by supply concern exacerbated by Russias invsion of Ukraine Russia is the third largest primary nickel producer after Indonesia and China. One of Tsingshans brokers, CCBI Global Markets, also failed to pay hundreds of millions of dollars in margin calls on its nickel positions on March 7. "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. 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. In late February and early March, Tsingshan, which had sales of 352 billion yuan (US$56 billion) last year, paid its margin calls on time. Weve received a lot of phone calls today, he said. In late February and early March, Tsingshan, which had sales of 352 billion yuan ($56 billion) last year, paid its margin calls on time. Late Tuesday, the exchange said it anticipates trading wont resume before Friday. 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. Tsingshan was unable meet margin calls and only avoided bankruptcy after . It's been under growing pressure to meet the payments in recent days, the. We expect the EBITDA margin to be around . Undeterred, the Chinese tycoon has told banks he wants tomaintain his position, and has asked them to keep funding him despite the losses. Hansen of Concord Resources argues that financial investors who traded nickel last week should have been prepared for the LME to step in. Exchanges. https://www.wsj.com/articles/chinese-nickel-giant-tsingshan-faces-8-billion-trading-loss-as-ukraine-war-upends-market-11646765353. Trimegah menilai bisa. 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. For Xiangs big short position, that was painful. This copy is for your personal, non-commercial use only. 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. 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. The Companys registered office is at Bahamas Financial Centre, 3rd Floor, Shirley and Charlotte Street, P.O. The industry leader for online information for tax, accounting and finance professionals. 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. The difference is that nickel is a commodity that touches the entire global economy. All quotes delayed a minimum of 15 minutes. Tsingshan Holdings was founded in 1988 by Xiang Guangda in Wenzhou. Tsingshan has been struggling to pay margin calls to its brokers, according to people familiar with the situation. 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. Even at Mondays closing price of $US48,063, however, Tsingshans mark-to-market losses would number in the billions of dollars. Build the strongest argument relying on authoritative content, attorney-editor expertise, and industry defining technology. read more. 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. 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. And once again, this short squeeze racked up billions in losses for those involved. Financial markets are on edge after the London Metal Exchange last week granted a reprieve to the giant Chinese nickel producer, which . Short-covering trades made last week by the Chinese billionaire contributed to a swift, huge surge. articles a month for anyone to read, even non-subscribers! 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. 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. Among them were some of the biggest names on Wall Street. This copy is for your personal, non-commercial use only. UNFORGIVEABLE,tweetedMark Thompson, a former trader at Trafigura and Apollo. While investors who sell stocks short want the price to drop, in commodity markets many producers, traders, and users take short positions as a hedge against losses on the physical commodities they hold in inventories. 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. read most from bloomberg Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. Matthew Chamberlain, the LMEs chief executive officer, had stayed up to watch. Tsingshan, the world's largest stainless steel producer, is rumoured to have built a big short position in nickel before a 250% rally in [] A sharp surge in nickel prices triggered margin call fears at the London Metal Exchange which suspended trading after prices doubled in hours. Tsingshan has been finding it difficult to pay margin calls to its creditors, the report said. Soon Chamberlain and other executives at the exchange began receiving frantic phone calls from LME brokers. 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. 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. 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. At 8:15 a.m., the screens stopped flashing, hours before the in-person pit trading session was even set to begin. Our Standards: The Thomson Reuters Trust Principles. Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com. 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 extra charge kicks in at close of business on Tuesday. 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. Tsingshan's 2022 nickel equivalent output is . 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. 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. Then in . But its extremely unusual for an exchange to cancel whole sessions of trading after the fact. Tsingshan is also NIC's majority shareholder with a 21.15% stake through Shanghai Decent Investment. 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. 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. 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. Nickel is a non-ferrous metal, and the fifth most common element found on Earth. 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. Why is nickel going up so drastically in a short period of time? 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. Tsingshan is also a nickel miner and operates nickel pig iron mines and production facilities. Advertise | Careers | Editorial Guidelines | 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. 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. Last chance for up to $40 off TurboTax, All Jeans + Pants 25% off! 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. Many traders expect the price to return to more normal levels once the margin call chaos has been resolved. Jack Farchy, Alfred Cang and Mark Burton, Bloomberg News. Q. Credit: INF News.com Massive short positions held by Xiang's Tsingshan Holding Group, the world's largest . 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. The Morowali park mainly produces nickel pig iron for stainless steel. 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. The LME at the end of the day is a physical metal market, he says. Now, people familiar with the matter say, the exchange is likely to introduce such measures as position limits and greater transparency. 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. The Initial Margin was $20,000 per contract. Others in the market may also push up prices in anticipation of that short covering. Solugen Bio has built a chemical plant that produces all manner of chemical-based products using bio-based feedstock instead of fossil fuels. Tsingshan and others had to buy . Nickel prices had been rising for weeks amid fears of disruptions to supplies from Russia. 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. 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. Join the 500.000+ traders worldwide that chose to trade with Capital.com, Also you can contact us: 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. 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. Bahamas financial Centre, 3rd Floor, Shirley and Charlotte Street, P.O complex and ever-expanding tax compliance! 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