Chinese nickel giant Tsingshan faces $8bn trade loss as war in Ukraine upends market

HONG KONG – Chinese nickel titan Tsingshan Holding Group is facing billions of dollars in business losses, sources close to the company have said, after Russia’s war in Ukraine triggered an unprecedented rise in the price of nickel. a key metal used in stainless steel and electric vehicle batteries.

The paper’s loss stood at $8 billion on Monday, before sharp moves in nickel prices caused the London Metal Exchange to suspend trading in the metal on Tuesday, one of the people said. Late Tuesday, the exchange said it expected trading would not resume until Friday.

Tsingshan could not be reached for comment. Chinese media reported the $8 billion loss on Tuesday.

Tsingshan founder Xiang Guangda told Chinese media that “there have been movements of foreigners” and that he is in active negotiations with the parties involved, without specifying who they were and what was in progress. negotiation course.

Mr. Xiang was also quoted as saying that “the relevant government departments and leaders are all very supportive of Tsingshan. Tsingshan is a solid Chinese company and our positions and operations have no problems,” according to Yicai, a financial news outlet.

Some of Tsingshan’s creditor banks in China have expressed concern about the effect of the company’s business losses on its balance sheet, according to people familiar with the company. The company assured them on Tuesday that its financial situation was sound and that it could even sustain “extreme losses” on futures, according to one of the people.

The private company Tsingshan, which means “green mountain”, is based in the Chinese city of Wenzhou and has production plants in Indonesia, India and Zimbabwe. Founded in 1988, the company has shaken up the nickel market in recent years after producing a flood of low-cost materials known as nickel pig iron, weighing on global prices.

More recently, it has established itself in the electric vehicle industry, supplying large volumes of nickel matte to electric vehicle battery manufacturers in China and elsewhere. The company recorded $19 billion in revenue last year.

For years, Tsingshan has routinely sold nickel using futures contracts as part of its regular hedging, according to people familiar with the business.

A big question in the metals market is whether the company is also likely to make big profits from higher prices for the metal it produces, which could offset its trading losses on the LME. A trader said the answer will partly depend on the extent to which Tsingshan has price-fixed his metal.

Prices for oil, natural gas, wheat and industrial metals have seen out of whack moves since Russia invaded Ukraine last month, a sign of the unintended economic consequences of the Russian invasion and the punitive sanctions triggered in response . Russia is a major supplier of nickel, which was already in short supply due to high demand as an ingredient in lithium-ion batteries that power electric vehicles.

Civilians fled the city of Sumy when Ukraine and Russia agreed to a limited ceasefire in that city; residents said soldiers ransacked their homes in Irpin; Ukrainian President Zelensky posted provocative video messages. Photo: Christopher Furlong/Getty Images

Nickel prices typically move a few percent per day. They jumped 66% on Monday and then on Tuesday the price briefly doubled. “I don’t think I remember ever seeing a chart that looked like this,” said Geoffrey Sambrook, who traded on the LME for nearly three decades for companies such as Rothschild & Co. and now blogs under the pseudonym of Lord Copper.

Rising nickel prices, beginning with the invasion, inflicted losses on companies including Tsingshan, which had sold nickel contracts to lock in prices for their metal products. These companies, their banks and brokers have struggled to meet margin calls from exchanges, traders said. They rushed to liquidate losing positions by buying back nickel contracts.

Virtually no one would sell to them, traders said, so the buying drove prices up hugely in a self-reinforcing momentum known as a short squeeze. The crescendo came early Tuesday, when the price of nickel on the London Metal Exchange hit a record high of over $100,000 per metric ton before pulling back somewhat.

Nickel cathode sheets at a factory in Russia last year.


Photo:

Andrei Rudakov/Bloomberg News

The LME, a unit of Hong Kong Exchanges and Clearing,

suspended the nickel market, the first time it has frozen trade in a metal since the collapse of an international tin cartel in 1985.

The exchange said trading could be closed for several days, giving market participants time to find cash to pay margin requirements. Nickel trades made on Tuesday before the suspension will be cancelled. The LME said it would establish new measures to ensure the market operates in an orderly fashion when it reopens.

Principa Capital, a London-based macro hedge fund, took long positions in nickel last week and attempted to liquidate them on Tuesday morning, but the trades were later called off and are under review by the LME.

“It is not very clear how the transactions will be closed or marked. This creates a lot of uncertainty,” said Ashraf El-Ansary, managing partner of Principa.

The LME – with a mysterious collection of contracts and a wide range of miners, traders and investors – is sometimes the seat of unusual market movements. US sanctions against Russian producer EN+ Group sent aluminum prices soaring four years ago.

In 1996, the Japanese trader Sumitomo Corp.

racked up billions of dollars in losses after chief trader Yasuo Hamanaka tried to corner the copper market. Mr. Hamanaka would go to jail for fraud and forgery.

Write to Jing Yang at [email protected], Rebecca Feng at [email protected] and Joe Wallace at [email protected]

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