May 21, 2022

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Bloomberg: JPMorgan's biggest counterpart to China's short-term nickel speculator - wants to sell short

Bloomberg: JPMorgan’s biggest counterpart to China’s short-term nickel speculator – wants to sell short

During some exciting hours on Tuesday this week, the price of nickel rose more than 250 percent to more than $100,000 a ton. It was so exciting that the London Metal Exchange (LME) chose to stop trading nickel for the rest of the week, for the first time in the exchange’s 145-year history.

At the center of it all were Chinese billionaire Xiang Guangda and his Tsingshan Holding Company, the world’s largest producer of nickel and stainless steel. Guangda shorted the metal, i.e. bet the price would go down, but the opposite happened. It caused huge paper losses for the Chinese – already on Monday the loss was supposed to be more than 70 billion crowns, according to the WSJ.

JP Morgan secures 50,000 tons

Tsinghan negotiated until Tuesday night and into dawn Wednesday to provide new loans from JPMorgan Chase and China Construction Bank, among others. It is not known how much security was applied.

JPMorgan Chase is a counterparty and acquires 50,000 tons of nickel from a total site of 150,000 tons, Bloomberg writes on Friday night, refers to persons who have knowledge of the case. This makes the bank the largest counterparty in the historical event. Instead of Xiang directing her position, she entered the so-called over-the-counter market, which is a simpler and effective alternative to direct trading.

According to Bloomberg, Tsinghan was due to appear with about $1 billion in additional security for JPMorgan on Monday, something the company was unable to do.

The same news agency wrote that JPMorgan is now leading talks with Tsinghan and about a dozen other banks and brokers. Institutions that provided security for the LME Commodity Exchange, now risking billions of dollars in losses if Tsinghan fails to meet its obligations.

refuses to give up

The price of a large number of other goods has risen sharply and fluctuated sharply since the invasion of Ukraine, raising the risks of uncontrolled price increases and forced sales. Russia produces 16 percent of all the world’s high-quality nickel, but is also a major producer of a large number of other metals.

According to Bloomberg, LME works to reduce short positions in the market, so that these positions do not disturb the market when trading reopens.

“However, the LME sees credit conditions in the broader commodity markets being pressured as a result of geopolitical events and price increases,” it said in a statement issued by the Metals Exchange earlier this week.

But Guangda – despite losing tens of billions – should not lose faith that the price of nickel will fall sharply. Bloomberg wrote on Thursday that Guangda was said to have told banks and brokers that it had no plans to reduce the short position.

Beijing to the rescue?

According to the Financial Times, Chinese authorities in Beijing are considering lending a helping hand to Guangda and Tsing’an. One solution being discussed is for Tsinghan to replace some of the nickel it produces, which is not of sufficient quality for LME, with a refined metal from China’s state reserves, according to people familiar with the matter.

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In doing so, Tsinghan will be able to supply the LME with nickel and then pay the banks and brokers. However, this presupposes that the short position is closed, which Guangda has stated, as mentioned, that he has no plans for this.

Another possible solution is for Tsingan to sell the lower quality nickel and use the proceeds to pay the guarantors.

It is not known when the LME exchange will open trading in nickel again. In theory, one can still trade nickel on the Shanghai Futures Exchange, where the price was around $35,000 a ton on Friday. According to the FT, Tsinghan must have received enough security from lenders to be able to incur further losses when trading on the London Metal Exchange reopens.(Terms)Copyright Dagens Næringsliv AS and/or our suppliers. We would like you to share our cases using a link that leads directly to our pages. All or part of the Content may not be copied or otherwise used with written permission or as permitted by law. For additional terms look here.