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JPMorgan Chase caught as counterparty in nickel short-squeeze drama - Bloomberg

Mar. 11, 2022 5:09 PM ET

JPMorgan Chase (NYSE:JPM) appears to be caught in the middle of a short squeeze as the largest counterparty to nickel trades by Chinese tycoon Xiang Guangda, Bloomberg reports, citing people familiar with the matter.

About 50K tons of Xiang's total nickel short position of more than 150K tons is held through an over-the-counter position with JPMorgan (JPM), Bloomberg said. Based on that position, Xiang's company Tsingshan Holding Group would have owed the New York-based bank ~$1B on margin on Monday. Earlier this week, the news organization reported that Tsingshan has been struggling to pay margin calls to its brokers and banks.

JPMorgan (JPM) is now leading negotiations between Xiang and roughly 10 banks and brokers through which his nickel short position is held, the people told Bloomberg. With the rise in nickel prices, the banks and brokers involved in the transactions now have to make large margin calls of their own at the LME to cover the short positions.

The other banks and brokers involved include: Standard Chartered Bank Plc (OTCPK:SCBFF), BNP Paribas SA (OTCQX:BNPQF), CCB International Holdings, ICBC Standard Bank Plc, United Overseas Bank Ltd. (OTCPK:UOVEF), BOC International Holdings Ltd., DBS Group Holdings Ltd. (OTCPK:DBSDF), and brokerage Sucden Financial.

The crisis could end without losses for the banks and for Xiang. Tsingshan Holding, asone of the world's largest nickel producers, could benefit from the increase in price if it can get through this patch. Also, if Xiang holds on to his short position and nickel prices decline after the LME reopens, the amount he owes the banks and brokers could fall drastically.

On Thursday, London Metal Exchange rushes to contain fallout of nickel trading crisis

https://seekingalpha.com/news/3812866-jpmorgan-chase-caught-as-counterparty-in-nickel-short-squeeze-drama-bloomberg

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Meet the nickel king of China, who froze a 145-year-old metal exchange

By

Tristan Bove

March 11, 2022 12:43 PM MST

The historic London Metal Exchange has been on hold since Tuesday, after a sensational short squeeze sent nickel prices soaring to over $100,000 per tonne.

For context, that was double the metal’s previous record value.

Even more extraordinary, the squeeze was linked to enormous short positions held by just one man: Chinese metal tycoon Xiang Guangda.

He’s known in China as “Big Shot” for his towering position in the metal industry and the enormous weight he carries in global markets. But his latest play may cause billions of dollars’ worth of losses for investors around the world. It’s already made the American nickel worth more melted than it is in solid form, since the five cent coin now costs around 16 cents to mint.

Here’s how we got here.

China’s nickel king

Xiang Guangda started his career as a mechanic in a fishery company, then went into business with a relative making automotive doors, according to Finews Asia, a financial news site based in Singapore. In 1988, he got into the metal-making game and founded Tsingshan Holding Group, which went from being a local maker of automotive doors to one of the world’s largest producers of crude stainless steel and nickel. The company, where Xiang currently acts as chairman, reported an annual revenue of over $28 billion in 2018, according to Forbes.

Xiang’s company is also a big player in the global nickel market, having invested billions in countries with big nickel reserves such as Indonesia, extracting and refining huge amounts of the metal critical to manufacturing modern necessities like electric car batteries.

Xiang and his company were early pioneers in the global nickel trade, and his actions can be highly influential in the way the market moves. In 2019, Tsingshan singlehandedly sent nickel prices soaring after buying up massive inventories of the metal ahead of a forthcoming ban on raw nickel exports from Indonesia, where Xiang’s nickel extraction industry is headquartered.

But Xiang’s latest move has turned out to be a spectacular flop.

Xiang’s short squeeze

In the last few months of 2021, nickel prices hit a seven-year high, trading at around $21,000 per tonne, the result of relatively low inventory combining with growing demand for the metal as investors worldwide sought more for its applications in EV battery and stainless steel manufacturing.

As prices for nickel continued to rise, Xiang began shorting the metal, according to Bloomberg. When investors short stocks, they are betting that a commodity will lose value soon, while borrowing from brokers to sell on the open market. Once the value of the commodity falls, investors can buy the stock back at a profit before returning their loan to the broker.

But if investors make a wrong bet, and the value of a commodity rises, they will need to cover themselves by buying back the stock at a higher price. This is called a “short squeeze,” and it can make things even more expensive for a short-seller, as buying back the stock makes the value of the asset go even higher.

That’s exactly what happened with Xiang.

The Russian invasion of Ukraine upended markets trading stock and commodities worldwide, and the consequential sanctions the West placed on Russia directly impacted the nickel industry, dramatically raising the price of the commodity. Xiang bet that prices would fall, and he was wrong.

What happens next

Xiang is still convinced nickel prices will fall, and he is readying assets held by Tsingshan to be put up as collateral for his debtors, according to reporting from Bloomberg.

This may be a bluff, as the Financial Times reports the Chinese government is considering bailing Xiang out, with one option being to swap the company’s low-grade nickel reserves, which do not meet the London Metal Exchange’s quality standards, for high-grade metal held in China’s State Reserves Bureau. Tsingshan would then be able to use this metal to pay off brokers.

That will need to be a lot of metal, because the losses for Tsingshan in nickel trading reportedly stand at $8 billion.

Fortune was not able to reach Tsingshan or Xiang for comment.

The London Metal Exchange canceled almost $4 billion worth of trades on Tuesday as it froze activity, in an ongoing halt that is set to continue into next week.

https://fortune.com/2022/03/11/xiang-guangda-nickel-china-london-metal-exchange-short-squeeze-freeze/

The Chinese tycoon that lost billions betting against nickel reportedly wants to keep shorting the commodity

Matthew Fox

Mar 10, 2022, 11:53 AM

A trader blows bubble gum during the opening bell at the New York Stock Exchange (NYSE) on August 1, 2019, in New York City. Johannes Eisele/AFP via Getty Images

Xiang Guangda faces billions of dollars in losses after betting against the price of nickel, but he's not yet ready to throw in the towel.

Guangda has told the banks his business holds its short position with that he intends to continue his bet against nickel, according to Bloomberg.

Nickel prices briefly topped $100,000 per ton before the London Metals Exchange halted trading.

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A Chinese tycoon that faces billions of dollars in losses after betting against the price of nickel is not yet ready to throw in the towel, according to a Bloomberg report.

Xiang Guangda, owner of metals company Tsingshan Holding Group, has held a significant short bet against nickel prices and helped spark a massive 250% short-squeeze in the commodity earlier this week. Nickel prices briefly soared to more than $100,000 per ton before the London Metals Exchange halted trading in the commodity on Tuesday.

Now, the London Metals Exchange is attempting to privately match buyers and sellers to help close out short positions before they reopen the market, in an attempt to prevent a repeated squeeze higher in nickel prices.

But Guangda wants to press his bet against the commodity and hold onto it, with the thought that the commodity's price will move lower and he won't have to realize all of the losses that he currently faces.

Guangda holds a short position to the tune of 150,000 tons of nickel, and has told the 10 banks and brokers he holds his nickel short position with that he is not yet interested in closing out his bet, Bloomberg reported citing three people with knowledge of the conversations.

That could create issues for the banks working with Guangda, which have to meet margin calls on the losing position with the London Metals Exchange. Guangda is considering pledging some of his company's Indonesian assets to satisfy the necessary collateral for the money it owes on its losing bet, according to the report.

If Guangda holds out on his short bet, it could lead to continued high volatility in the commodity, which initially spiked as Russia's invasion of Ukraine and subsequent sanctions sparked concerns of dwindling supplies.

https://markets.businessinsider.com/news/commodities/nickel-price-short-squeeze-chinese-tycoon-lost-billions-presses-bet-2022-3

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