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. See here for a complete list of exchanges and delays. (HNI) to produce higher-grade nickel matte. 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. 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. 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. Tsingshan yang dimiliki oleh swasta secara harfiah memiliki arti "gunung hijau", berbasis di kota Wenzhou di China dan memiliki . Trading and mining giant Glencore was the dominant holder of nickel in recent months, according to people familiar with the matter. Tsingshan has said it has secured facilities with its consortium banks and will exit its position in an orderly manner. Copyright | 2023 Capital Com Online Investments Ltd. 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 decided to cancel all the trades that took place on Tuesday morningUS$3.9 billion of them, according to a Bloomberg calculation. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright International Banker 2023 | All Rights Reserved Subscription | About us | 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. The new historic high is nearly twice the previous record of $51,600 in 2007. The current events are unprecedented, LME said in a notice. By now, Tsingshan wasnt the only nickel company that was strugglingjust the biggest. Others took to social media. Your decision to trade should depend on your attitude to risk, expertise in the market, the spread of your portfolio and how comfortable you feel about losing money. The seeds of the epic short squeeze were sown last year, when nickel, like all commodities, was rallying from its COVID-era low. But recent events have certainly injected a dose of volatility into the market. Tsingshan Holdings was founded in 1988 by Xiang Guangda in Wenzhou. They held a hurried call on Monday evening, but decided to allow the nickel market to continue trading. 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WATCH: Trading on LME is now set to resume Wednesday. 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. Executives from Goldman Sachs Group Inc. voiced their displeasure at the decision on a call with Chamberlain. The price move on March 8 created a systemic risk to the market, the LME said two days later. 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. Contact us | 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 has been struggling to pay margin calls to its brokers, according to people familiar with the situation. Mr Xiang told Chinese news outlet Yicai that Tsingshan did not have any problems with its nickel trading. Nickel prices have since fallen and the three-month nickel last settled at $23,371/tonne on 3 November. For the LME to cancel nickel trades between willing buyers and sellers is unforgiveable. China's Tsingshan Holding Group has reached an agreement with banks under which they will not make margin calls on or close out the producer's nickel positions on the London Metal Exchange (LME . How to Geta Free Flight to Hong Kong in 500,000 Airline Ticket Giveaway, Apple Suppliers Are Racing to Exit China, AirPods Maker Says, Stocks, Bonds Drop as Traders Weigh Data, Fedspeak: Markets Wrap, Microsoft Expands Game Pass as Regulators Fret Over Activision Deal, Cash Is Paying More Than Traditional Stock-Bond Portfolio. Margin call ini membuat harga nikel meledak dan menembus US$ 100 ribu per ton dari hanya US$ 25 ribu per ton. Some started hurrying to buy back nickel contracts, sending the price of nickel spiraling ever higher. Reuters could not determine how large Tsingshan's short position currently is after it cut its exposure. 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. . 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. Already at an all-time high by 5:42 a.m., it lurched higher in stomach-churning leaps, soaring US$30,000 in a matter of minutes. The material provided on this website is for information purposes only and should not be understood as an investment advice. (Podcast). 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. And never trade money that you cannot afford to lose. 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. 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. The super spike was driven by holders of short positions, including Tsingshan and its brokers, rushing to close them out. The prices that were being seen during that Asian session were becoming disconnected from, I believe, physical reality.. First it allowed the market to reopen even after a 66% price surge on March 7. 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. Tsingshan agreed standstill with JPMorgan-led group of banks, Talks continue on loan facility to backstop short position. Yet the day before, the market had started to unravel, with prices rising by astunning66 per cent to US$48,078. In late February and early March, Tsingshan, which had sales of 352 billion yuan ($56 billion) last year, paid its margin calls on time. Tsingshan, among other Chinese companies, is ramping up a wave of new battery-grade nickel capacity in Indonesia. articles a month for anyone to read, even non-subscribers! The majority of retail investor accounts lose money when trading CFDs. A short squeeze is a market condition caused by massive short positions. 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. Among them were some of the biggest names on Wall Street. 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. 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. Bloomberg: Balance of Power focuses on the politics and policiesbeing shaped by the agenda of President Biden's administration. 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. It said the banks agreed not to make margin calls or close out their positions against Tsingshan while the company is resolving its nickel margin and settlement requirements. Only you can decide whether nickel is a good buy or not. Save my name, email, and website in this browser for the next time I comment. But its extremely unusual for an exchange to cancel whole sessions of trading after the fact. Not everyone shared his pessimism about prices. That means it would have suffered much more than $US2 billion ($2.7 billion) of daily losses at the most extreme point of nickels surge. Why bet against nickel when you have a nickel business? 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. 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. 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. Indeed, reports suggest that a number of investors are now preparing lawsuits, while the LMEs regulator, the Financial Conduct Authority (FCA), is expected to investigate the incident. People forgot that this isnt a video game retailer; its an important physical commodity.. Jack Farchy, Alfred Cang and Mark Burton, Bloomberg News. (Bloomberg) A unit of China Construction Bank Corp was given extra time by the London Metal Exchange to pay hundreds of millions of dollars in margin calls it missed on Monday amid an unprecedented rise in nickel prices, in this case According to people familiar with . 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. 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. Assessing the Incremental Costs of Regulation and Supervision Faced by Next-Gen Operating Models for Bankers and Advisors, Macroprudential Policy and Real Estate Funds. Tsingshan sold 200,000 ton March 2023 contracts at price of $20 per kilo. 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. It could be even larger than that when positions taken through intermediaries are taken into account, people separately said. The LME convened its special committee, a small group of metals and legal experts with the power to issue emergency rules for the market. .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. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. The banks declined comment or did not respond to a request for comment. "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. Xiang Guangda, the actual controller of Tsingshan, believes that the entry of so much nickel into the market will bring nickel prices down. Tsingshan debacle exposes weak underbelly of LME. Just over a year after the historic short squeeze involving video-game retailer GameStop sent shockwaves around the financial world, a similar episode broke out in early March, this time on the London Metal Exchanges (LME) nickel market. Now, the traders watched with a mixture of horror and grim fascination as the price went vertical. Erin Jonasson. 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. Prices doubled to a record above $100,000 per tonne in a matter of hours on Tuesday, prompting the London Metal Exchange (LME) to halt trading. 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. A Glencore spokesman declined to comment. Help using this website - Accessibility statement. Those 18 minutes will haunt me, says the executive, who wasnt authorized to speak publicly. The nickel market was anything but calm. 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 Chinese government may also play a role. Tsingshan's nickel matte plans could be 1st step into lithium battery value chain. 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 .
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