An employee. Tsingshan's 2022 nickel equivalent output is estimated at 850,000 tonnes. a practice known in financial markets as margin calls. read more. The price continued to climb higher as one of the world's largest nickel producers, Russia decided to invade Ukraine. 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. But its obligations dwarfed its available cash and bank credit. This copy is for your personal, non-commercial use only. The prices that were being seen during that Asian session were becoming disconnected from, I believe, physical reality.. In the meantime, the nickel market is on ice, with traders unable to exit their positions, and many billions of dollars tied up in margin calls. Keep in mind that past performance is no guarantee of future returns. The arrangement will also help the pave the way for the London Metal Exchange to restart nickel trading, they said. Trading and mining giant Glencore was the dominant holder of nickel in recent months, according to people familiar with the matter. 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. 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 Chinese government may also play a role. The price move on March 8 created a systemic risk to the market, the LME said two days later. At the current price of nickel, the brokers themselves wouldnt be able to pay their margin calls, they told the LME. For participants in commodities exchanges, a price rally is not necessarily good news. 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. Most analysts sided with Xiang, at least in the medium term, believing that nickel productionled by Tsingshan and its competitors in Indonesiawould outpace demand. Tsingshan's 2022 nickel equivalent output is . . 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 on the London Metal Exchange (LME), the company said on Monday, a move sources said should help calm the market. But nothing could prepare the market for what was about to follow, with the Russia-Ukraine conflict sending prices skywards on global supply concerns. read most from bloomberg 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. 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. 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. Tsingshan has been finding it difficult to pay margin calls to its creditors, the report said. 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 most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. 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. 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. 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. Nickel short interest was created by Tsingshan. 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 . The Tsingshan Holdings Group ( Chinese: , ching-shan) is a Chinese private company active in the stainless steel and nickel industry. 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. 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. At 8:15 a.m., the screens stopped flashing, hours before the in-person pit trading session was even set to begin. The London Metal Exchange initially announced rule changes late Monday in respond to a daily spike of as much of 90% (Reuters) Nickel, used in stainless steel and electric-vehicle batteries . 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. Nickel rocketed to a record high above $US100,000 a tonne on Tuesday, driven in part by Tsingshan and its brokers activity, before trading was suspended. 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. 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. Mr Xiang told Chinese news outlet Yicai that Tsingshan did not have any problems with its nickel trading. Bloombergs Joe Deaux reports. Those past scandals forced reforms on the exchange. It also doesn't create waste and may help fight the climate crisis. 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. However, the short position holders have to pay a margin. Why bet against nickel when you have a nickel business? Bloomberg: Balance of Power focuses on the politics and policiesbeing shaped by the agenda of President Biden's administration. our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact (Podcast). .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. It had sold nickel forward on the markets, betting on the price going down, not up. Tsingshan is an excellent Chinese enterprise, and our positions and operations dont have any problems.. 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. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Our fundamental responsibility is market stability, he told Bloomberg TV. At $2,250 a tonne, the capital required on 300,000 tonnes of nickel would be $675 million, according to Reuters calculations. 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. Our Standards: The Thomson Reuters Trust Principles. Tsingshan's nickel matte plans could be 1st step into lithium battery value chain. 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. . 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. Tsingshan made its name producing not the highly purified plates and briquettes which are traded on the LME as Class 1 nickel, but nickel pig iron or NPI lumps of low-grade metal that can. The super spike was driven by holders of short positions, including Tsingshan and its brokers, rushing to close them out. 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. Follow the topics, people and companies that matter to you. The unprecedented rally prompted the 145-year-old exchange to suspend nickel trading Tuesday. Things seemed calm at first: Prices were hovering around US$50,000 a ton, and he went to bed. 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. Are you considering whether or not to trade nickel or want to learn more about the market? 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. 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. articles a month for anyone to read, even non-subscribers! Solugen Bio has built a chemical plant that produces all manner of chemical-based products using bio-based feedstock instead of fossil fuels. Then in . 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. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. Tsingshan's difficulties paying its margin calls have put its . Tsingshan, among other Chinese companies, is ramping up a wave of new battery-grade nickel capacity in Indonesia. Credit: INF News.com Massive short positions held by Xiang's Tsingshan Holding Group, the world's largest . Join the 500.000+ traders worldwide that chose to trade with Capital.com, Also you can contact us: 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. Indeed, Russia is the worlds third-biggest nickel producer after Indonesia and the Philippines. 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. For the LME, the future isunclear. The company paid at least some of its margin calls early on Monday, according to a person familiar with the matter. This is lower than Nickel Mines' expected profit margin for nickel in matte at current prices. 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. 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 should be mentioned that nickel had already rallied to $25,000 in January before easing off by the end of the month. Help using this website - Accessibility statement. 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. 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. He draws a comparison with Silver Thursday, the day in 1980 when an attempt bythe Hunt brothersto corner the silver market came unstuck. Short-covering trades made last week by the Chinese billionaire contributed to a swift, huge surge. 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