Chinese metals group wins respite from banks on nickel bet

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Chinese metals group Tsingshan has won breathing space from banking counterparties as it decides what do with a backfiring bet that has plunged the global nickel market into turmoil.

Banks including JPMorgan and Standard Chartered have agreed not to close out Tsingshan’s position or make further margin calls — demands for extra cash to cover losses.

The standstill agreement will give the two sides time to hammer out a deal on a new secured credit facility that the world’s biggest stainless steel producer can use for its “nickel margin and settlement requirements”.

In a rare public statement the privately-owned company said an “integral feature” of the agreement was a “provision for the existing hedge positions to be reduced by the Tsingshan Group in a fair and orderly manner as abnormal market conditions subside”.

Several people with knowledge of the discussions said the banking counterparties were prepared to provide a secured credit facility because of the strength of Tsingshan’s business, which will be benefiting from high metal prices. Other banking counterparties to Tsingshan’s outsized nickel bet include Chinese lenders ICBC and China Construction Bank.

The London Metal Exchange suspended dealings in nickel last Tuesday and cancelled trades after its benchmark contract doubled to a record above $100,000 a tonne, bringing global trading in the metal to a halt.

Tsingshan was at the centre of a surge in nickel prices after its wager that nickel prices would fall collided with a rally in the metal sparked by the war in Ukraine, forcing it to buy contracts linked to the metal in huge volumes.

The size of the position has not been disclosed but Tsingshan was facing billions of dollars in potential losses when trading was halted, according to people with knowledge of the situation.

The LME has not said when trading will resume but the standstill agreement between Tsingshan and the counterparties to its short position could give the 145-year old exchange the certainty it needs to reopen the nickel market.

Nickel is used to make stainless steel but its fastest-growing market is in the batteries that power electric vehicles.

Many small and midsized brokers who act as middlemen for clients trading metal are closely watching Tsingshan’s ability to meet its margin calls. If the company cannot meet these demands and is closed out of its positions, many would also face large margin calls from their banks and the LME that they fear they could not meet.

Tsingshan is controlled by metals tycoon Xiang Guangda. Under his leadership the company has gone from being a small stainless steel producer in the coastal city of Wenzhou in the mid 2000s to by far the industry’s largest producer.

It is also the world’s biggest producer of nickel pig iron ore — a low-cost alternative to refined nickel — and now wants to build a presence in battery-grade nickel.

Xiang started to amass its short position towards the end of last year when prices began to pick up because of demand from carmakers.

Like other commodities, nickel has been roiled by the war in Ukraine with prices rising on fears that supplies from Russia — the world’s biggest producer of high-grade nickel — could be disrupted by western sanctions on Moscow.

The LME has been criticised for its decision to halt nickel trading, with the Mining Council of Canada on Monday calling on the exchange to set out a timeline for the resumption of trading.

“Without a stable, credible, equitable and functioning benchmark, this threatens to undermine global market confidence and integrity in the nickel industry and related downstream industries,” it said.

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