Banks will keep talking about nickel trade losses, says Tsingshan

The Tsingshan Holding Group said the major banks had agreed to continue discussing a potential settlement with the Chinese metals producer, whose upside bets led to a multi-day suspension of nickel trading on the stock exchange. London metals.

JPMorgan Chase JPM 0.99%

& Co. and other banks are seeking billions of dollars that Tsingshan owes them for transactions the banks made on its behalf on LME. The swaps represented a big bet against the price of nickel and resulted in heavy losses in Tsingshan when prices for the metal, used in stainless steel and batteries, surged following the Russian invasion of Ukraine. Price increases are now rippling through the global financial system and the global economy.

As trading losses mounted, banks and brokers that acted as intermediaries between Tsingshan and the LME faced large demands for liquidity from the exchange. Some sought to unwind trade by buying up nickel contracts, fueling an unprecedented price spike last Tuesday and prompting the LME to close the market. The LME said trading would resume on Wednesday morning.

During the so-called standstill agreement reached on Monday, Tsingshan said in a statement, the banks will continue discussions on a guaranteed loan package that would allow the company to pay the initial money it owes banks and to brokers, known as margin. Tsingshan said the banks had agreed not to liquidate positions they held against the company. He said they also agreed not to make any further margin calls in relation to existing trades. JPMorgan declined to comment.

The deal provides a mechanism for Tsingshan to reduce its position in nickel as market conditions normalize, the statement said. The statement did not provide details on the duration of the standstill, the size of the credit facility being discussed or the assets against which it could be secured.

The unprecedented surge in nickel prices on the LME caused by the unfortunate Tsingshan trade first rippled through the financial system and is now affecting the real economy. In particular, it has disrupted the operations of producers and manufacturers in China who make nickel-related products, showing how the trade fiasco is rippling through the entire supply chain for the widely used material.

Over the past week, more than half a dozen Chinese companies – most of which produce and supply nickel compounds – have sent notices to their customers and investors warning them of supply problems, price hikes prices or slowdowns in their ability to accept or fulfill orders.

Prices for nickel, a key ingredient used in stainless steel and electric vehicle batteries, soared last week following an epic short squeeze centered on China’s biggest nickel and steel producer. At one point last Tuesday, prices for the three-month nickel contract reached $100,000 per metric ton, leading the LME to suspend trading and cancel trades that took place that day. That put the latest contract closing price at $48,078 per metric ton last Monday, nearly double its level the previous week. The exchange has not yet specified when nickel trading will resume.

The sharp increase in prices is impacting businesses from all sides. In Australia, a base metal producer said on Monday that its planned $800 million purchase of a nickel miner could be delayed due to the huge movement in the price of nickel.

Jilin Jien Nickel Industry Co., a medium-sized nickel sulphate and nickel chloride producer based in the eastern province of Jilin, told customers in a letter dated March 9 that it was at risk of losing silver due to the sudden and dramatic increase in its costs of imported raw materials, which are based on LME nickel prices.

“A ruthless game of capital has come to us at lightning speed,” said the private company, whose website says it has the equivalent of $2 billion in assets and 5,000 employees. “This has resulted in an unprecedented crisis of survival for these responsible and hardworking companies, including us,” the company lamented, adding that “huge losses are no longer avoidable.”

It could not be determined whether Jilin Jien has a short position in nickel futures. The company also told customers that it could guarantee that only about half of the amount specified in its accepted orders would be delivered.

Miracle Automation Engineering Co., a Wuxi-based automation machinery maker, told investors that if nickel prices remain high, the company may also need to raise the price of its nickel products. Fushun Special Steel Co., a steelmaker based in Liaoning Province, told customers last week that the company had decided not to accept any new orders until prices for those metals stabilized.

Last Friday, the China Nonferrous Metals Industry Association, a trade group whose members include hundreds of public and private companies, expressed serious concern about what it called “the irrational surge”. nickel prices at the LME. The association said it believes nickel prices have seriously deviated from fundamentals and have also caused serious damage to related industries and businesses in the global nickel supply chain.

A spokesperson for the group, quoted in its own industry publication, also tried to comfort Chinese companies that have been forced to cut production and have stopped taking new orders. The spokesperson said that when the prices of certain non-ferrous metals, including copper and aluminum, soared last year, the Chinese government distributed these metals to targeted companies, which helped to solve their problems.

A Shanghai office of Chinese metals giant Tsingshan Holding Group, which had a massive short position in nickel futures.


News by Qilai Shen/Bloomberg

Many Chinese nickel producers import raw nickel ore from overseas and rely on LME prices, which are denominated in US dollars, as a benchmark for their overseas purchases, which also tend to be in dollars. . Companies have also tended to use LME nickel futures for hedging, industry analysts said.

Although there is also a nickel futures market on the Shanghai Futures Exchange, onshore trading is denominated in the Chinese currency, the yuan, and the market has been seen by traders as smaller and less liquid than its UK counterpart. .

Nickel trading has continued in Shanghai over the past week, despite a few one-day suspensions after prices rose above the maximum limits allowed by the exchange. The most active nickel contract reached a high equivalent to $42,225 per metric ton last Wednesday, and has since fallen back to $32,624.

The trade fiasco hurt nickel producers who used the LME for true hedging, said Michael Lion, chairman of Everwell Resources Ltd. and veteran of the metals industry.

“This is a completely artificially created crisis,” Mr. Lion said. He added that if producers and true hedgers are no longer able to trade on the LME, the primary function of the exchange as a risk management tool for physical global metals trading would be destroyed. .

Commodity prices are hot right now. But the prices investors pay on the open market for commodities like coffee, copper or corn have little to do with the price customers pay at the store. The WSJ’s Dion Rabouin explains. Illustration: Adele Morgan

Write to Rebecca Feng at [email protected] and Joe Wallace at [email protected]

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Comments are closed.