A series of small but quickly accumulated losses has sent the London Metal Exchange scrambling to prevent damage. The market is trying to find a way out that doesn’t hurt anyone, while investors are left wondering what will happen next.
The “lme” is a commodity market, which means it deals with raw materials. The London Metal Exchange has been scrambling to prevent damage from the nickel crisis that is happening in China.
The metals sector, banking authorities, and Chinese officials all hastened to settle a crisis in London’s nickel market, which was put on hold after an ill-fated deal resulted in massive price increases and billions of dollars in losses.
Tsingshan Holding Group, the world’s largest manufacturer of a metal used in stainless steel and electric-vehicle batteries, is in the heart of the action. According to a state-run media site, the business, which is sitting on $8 billion in trading losses, said on Wednesday that it has collected enough metal to settle all of its loss-making positions.
Tsingshan was unavailable for comment.
The London Metal Exchange halted trading in the nickel market early Tuesday, the first time it has done so since an international tin cartel collapsed in 1985. The decision came after a near-doubling of prices in a matter of hours, which dealers claimed was unprecedented.
Because LME prices are considered as a benchmark in the metals business, the chaos has repercussions for miners, steelmakers, and electric car manufacturers. Commodity markets were already in shambles as a result of the conflict in Ukraine and harsh sanctions, which disrupted supply lines and restricted trade of metals, energy, and food, all of which are vital to the global economy’s functioning.
Investors and financial traders complained that the LME’s decision to annul contracts conducted before to the suspension resulted in them missing out on gains and losing money on paired trades between nickel and other assets.
“Clearly, these are exceptional times, and they have compelled us to take actions that we would not have chosen,” LME CEO Matthew Chamberlain said. “We had to choose between protecting the market’s overall and long-term financial stability and the short-term trading gains of individuals who had traded on Tuesday morning.”
Nickel molten in a Norilsk, Russia, facility. Prices on the London Metal Exchange are used as a benchmark in the metals business.
REUTERS/Reuters/Reuters/Reuters/Reuters/Reuters/Reuters/Reuters/Reuters/Reuters/Reuters/Reuters
The Financial Conduct Authority of the United Kingdom stated in a statement that it was in constant communication with the LME and other relevant parties.
An move by brokers who list Tsingshan as a customer to repurchase back nickel futures they had sold on its account fueled the gains early this week. The corporation has been unable to fulfill rising margin calls due to a lack of capital.
Tsingshan received a financial lifeline to help meet those margin calls. It secured bridge loans from banks including JPMorgan Chase & Co. and China Construction Bank Corp. , according to people familiar with the matter. Bloomberg earlier reported that Tsingshan had obtained a loan package from domestic and international lenders.
Since Russia’s invasion of Ukraine at the end of February, the United States and its allies have slapped harsh sanctions on the country. Shelby Holliday of the Wall Street Journal examines how the sanctions are hurting everyone from President Vladimir Putin to ordinary Russians. Associated Press photo/Pavel Golovkin
As a significant source of nickel and steel, Tsingshan is vital to China’s metals sector. According to one of the persons, Chinese officials intervened and asked local banks to assist the firm. The fact that Tsingshan’s nickel forward contracts were for conventional hedging reasons, rather than being speculative, aided the firm in gaining government backing, according to the source.
Tsingshan had two options to unwind the transaction as prices started to rise earlier this week, traders said: buy back the forward contracts or deliver metal against them. The first option was tough since it would have required significant losses to be locked in.
The second alternative, despite the fact that Tsingshan is the world’s largest nickel producer, was likewise difficult. Nickel transported to LME warehouses must be at least 99.8% pure, a condition that Tsingshan’s nickel-pig iron and nickel matte do not meet in large amounts.
On Wednesday, the corporation took steps to rectify the problem. Tsingshan said it has managed to deploy enough nickel plates for physical delivery, according to the Securities Times, a financial publication published by the Communist Party’s flagship People’s Daily newspaper. The privately owned firm said that it intends to replace the nickel matte it makes with domestic metal nickel plates that may be used to satisfy overdue commitments.
Prices for certain futures on the Shanghai Futures Exchange plummeted as much as 17 percent Wednesday evening, indicating that Tsingshan’s actions had calmed tensions in the nickel market. Previously, certain nickel contracts had been halted because they had risen to their maximum value.
The London Metal Exchange (LME) has said that it would start the market carefully, with a shorter trading day and limitations on nickel price swings in either direction. It has encouraged corporations with large long and short metal holdings to pair off their positions, limiting the possibility of a future short squeeze. According to a source familiar with the exchange, it may resort to compelling corporations to net out their holdings.
Miners, steelmakers, and electric car manufacturers all require nickel in batteries, therefore the LME nickel market disturbance has repercussions.
Reuters photo/yusuf ahmad
Investors on the exchange were enraged by the contract cancellations, which they claim give Tsingshan, its lenders, and the LME an unfair edge. One hedge-fund manager claimed he had reduced his LME holdings by 90% because he couldn’t risk putting his customers’ money on the line and having deals canceled.
The LME is controlled by Hong Kong Exchanges and Clearing, and its efforts helped buy a large Chinese corporation and its state-owned lenders time to halt losses. This is a subject of dispute among some aggrieved traders.
Mr. Chamberlain said that the company’s nationality had no bearing on the LME’s reaction to the nickel market’s halt. “I can definitely state that the participant’s nationality was not a crucial element here,” he stated.
Even if the efforts succeed, Mr. Chamberlain’s reputation has been tarnished by the nickel debacle, and he is departing to join cryptocurrency business Komainu.
Mr. Chamberlain, a former UBS Group AG banker who advised Hong Kong Exchanges and Clearing on the LME’s purchase in 2012, has worked to make the exchange more accessible to financial participants. He attempted to attract hedge funds and algorithmic traders to an exchange that had hitherto been controlled by miners and smelters. In the face of competition from CME Group and Shanghai Futures Exchange, the plan intended to increase volumes.
—This article was co-written by Alistair MacDonald.
Rebecca Feng, Joe Wallace, and Jing Yang may be reached at [email protected], [email protected], and [email protected], respectively.
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The “lme nickel price” is a market that has been affected by the recent crisis in the nickel industry. The London Metal Exchange is scrambling to prevent damage and will be implementing new rules for trading.
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