HONG KONG. Chinese nickel titan Tsingshan Holding Group faced billions of dollars in losses, people familiar with the company said after Russia’s war in Ukraine caused an unprecedented rise in prices for a key metal used in stainless steel and electric vehicle batteries. .
The paper lost $8 billion on Monday before spikes in nickel prices led the London Metal Exchange to halt trading in the metal on Tuesday, one source said. Late Tuesday night, the exchange said it expected trading to resume no earlier than Friday.
Qingshan could not be contacted for comment. Earlier Tuesday, Chinese media reported an $8 billion loss.
Tsingshan founder Xiang Guanda told Chinese media that “foreigners have taken some action” and that the company is actively negotiating with relevant parties, without specifying who they are or what the negotiations are about.
Mr. Xiang also said that “the relevant government departments and leaders are very supportive of Qingshan. Tsingshan is a solid Chinese enterprise and our positions and operations have no problems,” Yicai, a financial news agency, said in a report.
Some of Tsingshan’s creditor banks in China were concerned about the impact of the company’s trading losses on its balance sheet, according to people familiar with the company. The firm assured them on Tuesday that its financial position was stable and that it could withstand even “extraordinary losses” from forward contracts, one source said.
Based in Wenzhou, China, Tsingshan, meaning “green mountain”, is a privately held company with manufacturing facilities in Indonesia, India and Zimbabwe. Founded in 1988, the company has rocked the nickel market in recent years after producing a flood of cheap material known as nickel iron, which has affected world prices.
More recently, it has ventured into the electric vehicle industry, supplying large volumes of nickel matte to electric vehicle battery manufacturers in China and other countries. Last year, the company’s revenue was $19 billion.
For years, Tsingshan routinely sold nickel using forward contracts as part of its regular hedging, according to people familiar with the company.
The big question in the metals market is whether a company can make big profits from rising prices for the metal it produces that could offset its trading losses on the LME. The trader said the answer will depend in part on the extent to which Tsingshan has locked in prices for its metal.
The prices of oil, natural gas, wheat and industrial metals have experienced a sharp rebound since Russia invaded Ukraine last month, signaling the unexpected economic impact of the Russian invasion and the punitive sanctions imposed in response. Russia is a major supplier of nickel, which was already in short supply due to high demand for lithium-ion batteries for electric vehicles.
Civilians fled the city of Sumy as Ukraine and Russia agreed to a limited ceasefire there; residents said that the soldiers searched their houses in Irpin; The President of Ukraine Zelensky published defiant video messages. Photo: Christopher Furlong/Getty Images
Nickel prices usually fluctuate by a couple of percent a day. They rose 66% on Monday and then briefly doubled on Tuesday. “I don’t think I could ever remember a chart that looked like this,” said Geoffrey Sambrook, who has traded the LME for companies including Rothschild & Co. for nearly three decades and now blogs under the pseudonym Lord Copper.
The post-invasion rise in nickel prices hurt companies, including Tsingshan, which sold nickel contracts to lock in prices for their metal products. According to traders, these companies, their banks and their brokers struggled to meet the margin requirements of the exchanges. They rushed to close their losing positions by buying back nickel contracts.
Traders said it was unlikely anyone would sell to them, so buying led to huge price increases in a self-reinforcing dynamic known as a short squeeze. The culmination came early on Tuesday morning when the price of nickel on the London Metal Exchange hit a record high of over $100,000 a metric ton before falling back slightly.
Nickel cathode sheets at a plant in Russia last year.
Photo: Andrey Rudakov/Bloomberg News
The LME, a division of the Hong Kong Exchanges and Clearing House, suspended the nickel market, freezing trading in the metal for the first time since the collapse of the 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 trading that took place on the Tuesday prior to the suspension will be cancelled. The LME said it will outline next steps to ensure the market operates in an orderly manner when it reopens.
Principa Capital, a London-based macro hedge fund, placed long nickel positions last week and attempted to liquidate them on Tuesday morning, but the trade was later canceled and is under review by the LME.
“It is not very clear how deals will be closed or marked. This creates a lot of uncertainty,” said Ashraf El Ansari, Principa Managing Partner.
With an intricate collection of contracts and a diverse array of miners, traders, and investors, the LME is sometimes home to unusual market movements. US sanctions against Russian producer EN+ Group caused aluminum prices to skyrocket four years ago.
In 1996, the Japanese trader Sumitomo Corp. suffered billions of dollars in losses after chief trader Yasuo Hamanaka attempted to monopolize the copper market. Mr. Hamanaka will go to jail for fraud and forgery.
— Anna Hirtenstein contributed to this article.
Write to Jing Yang at [email protected], Rebecca Feng at [email protected] and Joe Wallace at [email protected]
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