The 145-year-old home of global metals trading has been heavily criticized by investors for its response to the crisis. One thing is sure: If Xiang can weather the storm, Tsingshans nickel producing assets stand to benefit from the higher prices, offsetting losses from the short. The metal is found in all our homes as a key ingredient of stainless steel. 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. An employee. 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. Given our role in supervising the LME, we have been, and will continue to be, taking a very close interest in how it is managing and responding to the issues, the FCA confirmed in late March. The 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. 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. 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 difficulties paying its margin calls have put its . (Podcast). 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For the LME to cancel nickel trades between willing buyers and sellers is unforgiveable. It did not provide any other details, such as how long the standstill period would last. 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. Tsingshan's difficulties in paying its margin calls, and the company's ongoing bailout negotiations, have put its banks and brokers in a bind, as they have had to make hefty margin calls of their own at the LME to cover their short positions on the exchange. Tsingshan is also a nickel miner and operates nickel pig iron mines and production facilities. The major market events for the week ahead right in your inbox. Distribution and use of this material are governed by ", Britain's Financial Conduct Authority (FCA) and the Bank of England are talking to the London Metal Exchange about the resumption of a fair and orderly market in nickel, the FCA said on Monday in response to a request for comment. Is the US Finally Warming to the Possibility of Creating a CBDC? 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. According to reports, Tsingshan Group plans to produce 850,000 tons of nickel in 2022, an increase of 40% compared with the production of nearly 600,000 tons in 2021. Tsingshan, the world's largest stainless steel producer, is rumoured to have built a big short position in nickel before a 250% rally in [] The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. A week earlier, nickel was trading around $25,000 and the price of the metal has more than quadrupled in a matter of days. read more. 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 . And thank you everyone for your attendance on today's call for the Nickel Industries Full Year 2022 Results. 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. Tsingshan has said it has secured facilities with its consortium banks and will exit its position in an orderly manner. Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com. You should never trade more than you can afford to lose. Its not clear to what extent Xiang saw his position as merely a hedge or as a speculative bet. Box N-4865, Nassau, Bahamas. The LME did not put it into default, instead giving it more time to pay. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. Distribution and use of this material are governed by It could be even larger than that when positions taken through intermediaries are taken into account, people separately said. The LME suspended nickel trading in the early trading session on March 8 after prices more than doubled, breaching $100,000/mt mark and briefly reaching a record high of $101,365/mt. Matthew Chamberlain speaks on "Bloomberg Markets: Europe.". Build the strongest argument relying on authoritative content, attorney-editor expertise, and industry defining technology. 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) Reuters could not determine how large Tsingshan's short position currently is after it cut its exposure. 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. It had sold nickel forward on the markets, betting on the price going down, not up. 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. The big fear was that Tsingshan would struggle to make margin calls with its bankers, potentially facing billions of dollars in losses. 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. Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com. Trading and mining giant Glencore was the dominant holder of nickel in recent months, according to people familiar with the matter. https://www.wsj.com/articles/chinese-nickel-giant-tsingshan-faces-8-billion-trading-loss-as-ukraine-war-upends-market-11646765353. Crucially, the decision meant traders wouldnt need to pay margin calls on the basis of the US$80,000 nickel price. Beijing is supportive of him, Xiang told contacts recently. 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. 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. Weve received a lot of phone calls today, he said. The banks declined comment or did not respond to a request for comment. Assessing the Incremental Costs of Regulation and Supervision Faced by Next-Gen Operating Models for Bankers and Advisors, Macroprudential Policy and Real Estate Funds. 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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. 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. Traders must deposit cash,. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. Moscow's invasion of Ukraine and the west's moves to sanction Russia, a key major supplier, have electrified an already bullish nickel market. The super spike was driven by holders of short positions, including Tsingshan and its brokers, rushing to close them out. Tsingshan sold 200,000 ton March 2023 contracts at price of $20 per kilo. 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 . Credit: INF News.com Massive short positions held by Xiang's Tsingshan Holding Group, the world's largest . 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. Then, as now, a key factor was the intervention of the exchange. It was a classic short squeeze, as the pain for Tsingshan, its brokers, and other shorts created a self-reinforcing cycle. 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