Prices exploded, thanks mainly to one companyindeed, one man. 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Despite that, reserves that can be economically mined are limited. 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. 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. If you rely on the information on this page then you do so entirely on your own risk. 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. Now, the traders watched with a mixture of horror and grim fascination as the price went vertical. This copy is for your personal, non-commercial use only. Some have also warned that much of the chaos in the nickel market may not be over yet. That would come on top of any losses incurred by the tycoon since he began building the short position late last year through closely held Tsingshan. 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. Short-covering trades made last week by the Chinese billionaire contributed to a swift, huge surge. read more. You should never trade more than you can afford to lose. 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. He started increasing his short position on the London Metal Exchange. The Chinese government may also play a role. 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. Tsingshan Holding Group held the biggest short position for nickel on the LME. And never trade money that you cannot afford to lose. The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs. our Subscriber Agreement and by copyright law. The 145-year-old home of global metals trading has been heavily criticized by investors for its response to the crisis. 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. ), by sales channel (Direct Channel, Distribution Channel), by player (Shandong Xinhai Technology, Tsingshan Holding Group, Eramet, Linyi Yichen Alloy, Jiangsu Delong Nickel Industry . 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. The creditors involved include both local and intentional banks, including J.P. Morgan and China Construction Bank . At 1 a.m. on Tuesday, the market opened. See here for a complete list of exchanges and delays. Creditors and banks who acted for Tsingshan were demanding margin settlements and the closing of all positions. 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 . Forbes places Xiang's real-time net worth at $1.2 billion. 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. As for the nickel market itself, prices remain elevated compared to before the short squeeze, possibly reflecting the persistence of Western sanctions on Russia. 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. Most analysts sided with Xiang, at least in the medium term, believing that nickel productionled by Tsingshan and its competitors in Indonesiawould outpace demand. 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. Its nickel matte production in Indonesia is nearly 8,000 tonnes per month, according to the Shanghai Securities News. For Xiangs big short position, that was painful. 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. Everything changed when Russia invaded Ukraine. The price was frozen, below the record high but still at US$80,000 a ton. Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. our Subscriber Agreement and by copyright law. Exchanges. 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. Its participants are a mix of the industrial metals companies, which tap the market to offset their price risks, and hedge funds, which use it to speculate. Some started hurrying to buy back nickel contracts, sending the price of nickel spiraling ever higher. Tsingshan has been struggling to pay margin calls to its brokers, according to people familiar with the situation. 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. Tsingshan has been finding it difficult to pay margin calls to its creditors, the report said. Nickel short interest was created by Tsingshan. Tsingshan, the world's largest stainless steel producer, is rumoured to have built a big short position in nickel before a 250% rally in [] 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 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. 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 . 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. Miners, traders, and manufacturers often use the market to make short betsthat is, to make money when prices fall. Nevertheless, the short squeeze did trigger a whopping $8 billion margin call on Guangda. Executives at Tower Research Capital, one of Wall Streets oldest electronic market-makers, reined in its trading activity on the LME and put its membership in the exchange under review. It should be mentioned that nickel had already rallied to $25,000 in January before easing off by the end of the month. Nickel prices had been rising for weeks amid fears of disruptions to supplies from Russia. A consortium of hedge bank creditors that has a standstill agreement with Tsingshan agreed not to close out the positions against the company or to make further margin calls on the existing positions. 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. 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. Tsingshan debacle exposes weak underbelly of LME. 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. All quotes delayed a minimum of 15 minutes. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. The move is a characteristic display of self-confidence from Xiang Guangda, the owner of Tsingshan Holding Group Co., and means that the nickel market could be set for more fireworks once it reopens. Bloomberg: Balance of Power focuses on the politics and policies being shaped by the agenda of President Biden's administration. FY18 RESULTS, FY19 GUIDANCE AND CORPORATE PRESENTATION 22 AUGUST 2018 AGENDA Results Guidance Corporate Operations Growth Exploration Nickel Market DISCLAIMER AND FORWARD 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. Exchanges sometimes cancel trades when technology glitches or fat fingers cause one-off mistakes. If you are considering investing or trading nickel, its important to do your own research. Tsingshan sold 200,000 ton March 2023 contracts at price of $20 per kilo. Its not clear to what extent Xiang saw his position as merely a hedge or as a speculative bet. 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. Why is nickel going up so drastically in a short period of time? Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. After trading was suspended Tuesday following an unprecedented surge in prices, the London Metal Exchange said it does not expect nickel trading to resume before March 11. The Initial Margin was $20,000 per contract. Others in the market may also push up prices in anticipation of that short covering. By now, the entire nickel industry was in crisis. The industry leader for online information for tax, accounting and finance professionals. Nickel short interest was created by Tsingshan. They had offset their deals with Tsingshan by placing their own short positions on the LME. Among them were some of the biggest names on Wall Street. Beijing is supportive of him, Xiang told contacts recently. The paper loss stood at $8 billion on Monday, before violent moves in nickel prices led the London Metal Exchange to suspend trading in the metal on Tuesday, one of the people said. The super spike was driven by holders of short positions, including Tsingshan and its brokers, rushing to close them out. 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. Known as "Big Shot" in China for his imposing presence in the metal industry, Xiang Guangda, the founder of the world's biggest nickel and stainless-steel firm, Tsingshan, had amassed a short position of more than 150,000 tonnes of nickel, which was about five times the volume of the metal held by the LME and equivalent to approximately People familiar with the discussions said the exchange would ideally prefer to wait until Xiang has reached a resolution with his banks and brokers. losed Joint Stock Company FinTech Solutions. Founded back in 1877 and now owned by Hong Kong Exchanges & Clearing (HKEX), the LME performs a critical role in determining benchmark prices for the global metals industry and provides a liquid market venue for financial institutions to make money. The majority of retail investor accounts lose money when trading CFDs. 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. Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile. 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. 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