September 28, 2022

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Zingshan says banks will continue to talk about nickel trading losses

Zingshan says banks will continue to talk about nickel trading losses

The Tsingshan Holding Group said major banks have agreed to continue discussing a potential settlement with the Chinese metal producer, whose wrong bets have suspended trading of nickel for days on the London Metal Exchange.

c. B. Morgan Chase

JPM 0.99%

and Associates and other banks They are looking for billions of dollars that Tsingshan owes them for the trades made by the banks on their behalf on the London Metal Exchange. The trades amounted to a big bet on the price of nickel and led to big losses in Tsingshan when prices for the metal, used in stainless steel and batteries, soared in the wake of Russia’s invasion of Ukraine. Price increases are now spreading across the global financial system and the global economy.

With the increasing losses in trades, banks and brokers who acted as intermediaries between Tsingshan and LME faced large cash requests from the exchange. Some sought to unlock deals by buying back nickel contracts, which led to an unprecedented price hike last Tuesday and prompted the London Metal Exchange to close the market. The London Metal Exchange said trading would resume on Wednesday morning.

Tsingshan said in a statement that during the so-called standstill agreement reached on Monday, the banks would continue talks on a secured lending package that would enable the company to pay the cash it owes to banks and brokers, known as margin. Tsingshan said the banks had agreed not to close positions they held against the company. She also agreed that no further margin calls would be made in connection with existing trades. JPMorgan declined to comment.

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The statement said the deal provides a mechanism for Tsingshan to reduce its nickel position as market conditions return to normal. The statement did not provide details on the duration of the freeze, the size of the credit facilities under discussion, or the assets that could be secured against them.

like never before Nickel price hike On the London Metal Exchange, sparked by the ill-fated Tsingshan trade, it first spread through the financial system and is now affecting the real economy. In particular, it disrupted the operations of producers and manufacturers in China that make nickel-related products, showing how Echoes of commercial failure Across the supply chain for widely used materials.

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 of fluctuations in supply, rising prices, or a slowdown in their ability to accept or meet orders.

Prices of nickel, a key component used in stainless steel and electric car batteries, rose last week after an epic short squeeze centered on China’s largest nickel and steel producer. At some point last Tuesday, prices for the three-month nickel contract reached $100,000 per metric ton, prompting the London Metal Exchange to suspend trading and cancel the trades that occurred that day. This put the contract’s last closing price at $48,078 per metric ton last Monday, nearly double its level in the previous week. The exchange has not yet determined when nickel trading will resume.

A sharp increase in prices affects companies on a large scale. In Australia, a base metal producer said on Monday it plans to buy an $800 million nickel mine can be late Because of the huge nickel price movement.

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Jilin Jien Nickel Industry Co., Ltd. Ltd., a medium-sized producer of nickel sulfate and nickel chloride based in eastern Jilin Province, told its customers in a letter dated March 9 that it would likely lose money due to its sudden and dramatic increase in production. Costs of imported raw materials, which are measured on the basis of nickel prices on the London Metal Exchange.

“The tough game of capital has arrived at us at lightning speed,” said the privately owned company, whose website said it has the equivalent of $2 billion in assets and 5,000 employees. The company lamented, “It has brought an unprecedented survival crisis to those responsible and hardworking companies including us,” adding that “heavy losses can no longer be avoided.”

Can not determine whether Jilin Jian has short stand in nickel futures contracts. The company also told customers that it can only guarantee delivery of about half of the amount specified in its accepted orders.

Miracle Automation Engineering Co., Ltd. Ltd., a Wuxi-based automation machine manufacturer, told investors that if nickel prices remain high, the company may have to raise prices for its nickel products as well. Fushun Special Steel, a steelmaker based in Liaoning Province, told customers last week that the company decided to stop accepting new orders until prices for these metals stabilize.

Last Friday, the China Nonferrous Metal Industry Association, a trade group whose membership includes hundreds of state-backed and private companies, said it was deeply concerned about what it called an “irrational rise” in nickel prices on the London Metal Exchange. The association said it believes that nickel prices have seriously deviated from fundamentals and also caused significant harm to industries and related companies in the global nickel supply chain.

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The group’s spokesman, quoted in its industry publication, also tried to console those Chinese companies who had to cut production and stopped receiving new orders. The spokesman said that when the prices of some non-ferrous metals including copper and aluminum rose last year, the Chinese government distributed these metals to target companies, which helped solve their problems.

The Shanghai office of Chinese metal giant Tsingshan Holding Group, which has had a short position in nickel futures.


Photo:

Kelay Shen/Bloomberg News

Many Chinese nickel producers import raw nickel ore from abroad and rely on London Metal Exchange prices – denominated in US dollars – as the benchmark for their overseas purchases, which also tend to be in dollars. Industry analysts said companies also tend to use LME nickel futures contracts for hedging purposes.

Although there is a nickel futures market on the Shanghai Futures Exchange, onshore trading is denominated in China’s currency, the yuan, and traders have considered the market smaller and less liquid than its British counterpart.

nickel trade It has continued in Shanghai for the past week, though with some one-day suspensions after prices moved within the maximum limits allowed by the exchange. The most active nickel contract achieved a high of 42,225 dollars per metric ton last Wednesday, and has since fallen to 32,624 dollars.

Michael Lyons, president of Everwell Resources Ltd. An expert in the metals industry, the trade fiasco has hurt nickel producers who use the London Metal Exchange as a venue for real hedging purposes.

“This is a completely artificial crisis,” Leon said. He added that if genuine producers and hedgers were no longer able to conduct activities on the LME, the primary primary function of the exchange as a risk management tool in the global physical metals trading would be destroyed.

Commodity prices are hot now. But the prices that investors pay in the open market for commodities such as coffee, copper or corn have nothing to do with the price customers pay in the store. WSJ’s Dion Rabouin explains. Illustration: Adele Morgan

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

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