This is lower than Nickel Mines' expected profit margin for nickel in matte at current prices. 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 did not provide any other details, such as how long the standstill period would last. To limit price volatility the LME imposed daily upper and lower price limits of 15% for all its physically delivered metals. Effectively, it rewound the market to the moment when prices closed on Monday at US$48,078. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. They had offset their deals with Tsingshan by placing their own short positions on the LME. Then on March 7, nickels price began its parabolic ascent, surging from US$30,000 a ton to more than US$50,000. In response to the crisis, the LME suspended nickel trading on 8 March and cancelled all trades executed on or after 00:00 UK time on 8 March 2022 in the inter-office market and on LMEselect (LME online trading platform) until further notice.. While Russias nickel exports havent been targeted by sanctions, U.S. and European buyers have nonetheless sought alternatives to Russian sources. The current events are unprecedented, LME said in a notice. You should do your own research, looking at the latest news, technical analysis, and analyst commentary before trading. It's been under growing pressure to meet the payments in recent days, the. The question is, will it continue to fail? Ghali posited to CNN. Jack Farchy, Alfred Cang and Mark Burton, Bloomberg News. It got to a point where there were things going on which were not normal market forces. Daniel Ghali, director of commodities strategy at TD Securities, meanwhile, believes the worlds pricing mechanism for nickel is failing. People forgot that this isnt a video game retailer; its an important physical commodity.. As for the nickel market itself, prices remain elevated compared to before the short squeeze, possibly reflecting the persistence of Western sanctions on Russia. read most from bloomberg Russia is the worlds third-largest producer of nickel and its largest exporter of refined nickel metalthe type deliverable on the LME. read more. Many producers, traders, and users of nickel with short positions on the LME were facing margin calls many times larger than they were prepared for. The seeds of the epic short squeeze were sown last year, when nickel, like all commodities, was rallying from its COVID-era low. Bloomberg: Balance of Power focuses on the politics and policies being shaped by the agenda of President Biden's administration. See here for a complete list of exchanges and delays. An employee. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Reuters could not determine how large Tsingshan's short position currently is after it cut its exposure. Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks. Tsingshan has been struggling to pay margin calls to its brokers, according to people familiar with the situation. Read on for our analysis on the recent LME nickel short squeeze and the market outlook. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright International Banker 2023 | All Rights Reserved Subscription | About us | LME CEO Matthew Chamberlain says suspending nickel trading and canceling the trades on the London Metal Exchange was the right decision for the sake of market stability. . Everything changed when Russia invaded Ukraine. Metal industry sources said that for the duration of the standstill agreement Tsingshan, the world's largest nickel producer, may not have to buy any more metal to cover its short positions. Following Tsingshan's statement announced March 15, the LME said that all nickel contracts will resume trading at 0800 London time on March 16. 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. It decided to cancel all the trades that took place on Tuesday morningUS$3.9 billion of them, according to a Bloomberg calculation. If you rely on the information on this page then you do so entirely on your own risk. Xiang didnt believe the rally would last. Its unclear whether he will get his way. Xiang Guangda -- who controls the world's largest nickel producer, Tsingshan Holding Group Co., and is known as "Big Shot" in Chinese commodity circles -- has closed out part of his company's short position and is considering whether to exit the wager altogether, the people said. 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. While Mark Thompson, executive vice-chairman at mining-development company Tungsten West, tweeted: The LME is now very likely going to die a slow, self-inflicted death through the loss of confidence in it and its products.. Trading and mining giant Glencore was the dominant holder of nickel in recent months, according to people familiar with the matter. Then, as now, a key factor was the intervention of the exchange. Nevertheless, the short squeeze did trigger a whopping $8 billion margin call on Guangda. Terms & Conditions Finance Publishing News Corp is a global, diversified media and information services company focused on creating and distributing authoritative and engaging content and other products and services. Hansen of Concord Resources argues that financial investors who traded nickel last week should have been prepared for the LME to step in. And thank you everyone for your attendance on today's call for the Nickel Industries Full Year 2022 Results. Despite that, reserves that can be economically mined are limited. 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 metal is found in all our homes as a key ingredient of stainless steel. The extra charge kicks in at close of business on Tuesday. Several large brokers got margin calls of close to US$1 billion each over the course of the day. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers. losed Joint Stock Company FinTech Solutions. Today, Tsingshan is the biggest nickel producer in the world, accounting for around 20% of the global market. 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. Chinese nickel giant Tsingshan's hedge backfired Commodities companies of course generally benefit from higher prices for their products. In an earlier interview with Chinese news outlet Yicai, Xiang blamed "foreigners making some moves" for nickel's price spike. 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. Creditors and banks who acted for Tsingshan were demanding margin settlements and the closing of all positions. The price move on March 8 created a systemic risk to the market, the LME said two days later. The difference is that nickel is a commodity that touches the entire global economy. Tsingshan, the world's largest stainless steel producer, is rumoured to have built a big short position in nickel before a 250% rally in [] Capital Com is an execution-only service provider. And when those wagers move violently in the opposite direction, they can be hit with huge margin calls, or requests to put down more cash to back their trades. "For the period of the standstill, the participating hedge banks agree not to close out positions against Tsingshan or to make further margin calls in respect of existing positions. read more. Its not just a casino., Avenue Living CEO foresees consistency in 2021 real estate trends, Millennials must use COVID as an opportunity to prepare for their future: Financial planner, Canadian cities will bounce back and people will want to return to work: Edmonton Mayor Don Iveson, How employers are embracing flexible work arrangements, Retirees need to focus on risk management: Som Seif on the future of personal finances, Pandemic puts hair salons in startup mode: Ray Civello, Canadian Western Bank looking to flexible workplace policies post-pandemic: CEO, Many moving parts to how leaders can help entrepreneurs in the pandemic: Arlene Dickinson, How investors should view the real estate market, How real estate adapts as COVID puts urban living to the test, Chinese tycoon behind big nickel short faces billions in losses, LME CEO: Suspending Nickel Trading Was Right Decision. Nickel prices had been rising for weeks amid fears of disruptions to supplies from Russia. The tycoon whose big short bet on nickel helped trigger one of the most dramatic price spikes in history has told his banks and brokers that he doesnt intend to reduce his position, according to people familiar with the matter. Tsingshan was unable meet margin calls and only avoided bankruptcy after . We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. Those payments have now been made, a person familiar with the matter said on Tuesday. Is the Strength of Big Tech Regulation Sufficient at Present? Tsingshans were even larger, numbering roughly US$3 billion, according to a Bloomberg calculation based on the companys total short positionwhich, even after Xiang had closed out a portion of the bet in previous weeks, was over 150,000 tons. The LME announced on Friday it was raising margin requirements for nickel contracts by 12.5% to $2,250 a tonne. (Bloomberg) -- One of the key Chinese players in last year's nickel short squeeze is preparing to meet London Metal Exchange Chief Executive Matthew Chamberlain in the first face-to-face encounter since the crisis that upended the global metals world.Most Read from BloombergHow Biden's Shock-and-Awe Tactic Is Failing to Stop RussiaChina Cease-Fire Proposal for Ukraine Falls Flat With US . 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. 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. 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. See here for a complete list of exchanges and delays. Save my name, email, and website in this browser for the next time I comment. Most market participants expect nickel prices to come back down once the crisis around Xiangs position has been resolved. 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. Xiang wanted to increase Tsingshans production dramatically by producing so-callednickel matte. Q. This was the most disorderly move in a metal Ive seen in my career, says Mark Hansen, chief executive officer of trading house Concord Resources Ltd. We had a frenzy based on speculation that accelerated on Monday and Tuesday. [2] It moved into the Indonesian nickel industry in 2009. HONG KONGChinese nickel titan Tsingshan Holding Group faces billions of dollars in trading losses, people familiar with the company said, after .css-1h1us5y-StyledLink{color:var(--interactive-text-color);-webkit-text-decoration:underline;text-decoration:underline;}.css-1h1us5y-StyledLink:hover{-webkit-text-decoration:none;text-decoration:none;}Russias war in Ukraine set off an unprecedented rise in the price of a key metal used in stainless steel and electric-vehicle batteries. But its extremely unusual for an exchange to cancel whole sessions of trading after the fact. Based on the close on Friday night at $29,130, the LME were raising initial margins to a prudent 7.72% of the contract value. 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. But to hedge against a a drop in prices, they use. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. When it was flying towards US$100,000, you could feel the damage, and you knew companies were fighting for their existence, says John Browning, founding partner of brokerage Bands Financial Ltd. and a former LME board member. Tsingshan is an excellent Chinese enterprise, and our positions and operations dont have any problems.. At the center of the action is Chinese nickel titan Tsingshan Holding Group, the worlds biggest producer of a metal used in stainless steel and .css-1h1us5y-StyledLink{color:var(--interactive-text-color);-webkit-text-decoration:underline;text-decoration:underline;}.css-1h1us5y-StyledLink:hover{-webkit-text-decoration:none;text-decoration:none;}electric-vehicle batteries. 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. A record-breaking rally in nickel prices that led the London Metal Exchange to halt trading on Tuesday is putting increased pressure on the Chinese stainless steel producer Tsingshan and its billionaire co-founder. Several large brokers got margin calls of close to US$1 billion each over the course of the day. 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 . It marked the first major market failure sinceRussias invasion of Ukrainejolted global markets, showing how the removal of one of the worlds largest exporters of resources from the financial system in the space of weeks is having ripple effects across the world. 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. They held a hurried call on Monday evening, but decided to allow the nickel market to continue trading. Singapore | A Chinese tycoon who built a massive short position in nickel futures is facing billions of dollars in mark-to-market losses after this weeks unprecedented price spike, according to people familiar with the matter. The big fear was that Tsingshan would struggle to make margin calls with its bankers, potentially facing billions of dollars in losses. Erin Jonasson. The war in Ukraine surprised the market and led to a price surge, pushing Tsingshans margin to billions as it rose in-line with nickel prices. Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts. Our Standards: The Thomson Reuters Trust Principles. 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. The Morowali park mainly produces nickel pig iron for stainless steel. The price spike left Tsingshan exposed to $8 billion USD of trading losses whilst struggling to meet their margin calls. 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 Wall Street Journal. But the effects of the short squeeze are likely to be felt in other ways. 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