Chinese tycoon Xiang Guangda behind big nickel short facing losses worth billions of dollars
- Nickel rocketed to a record high above US$100,000 a tonne on Tuesday before trading was suspended
- Tsingshan could have suffered well over US$2 billion of daily losses at the most extreme point of nickel’s surge on Monday
A Chinese tycoon who built a massive short position in nickel futures is facing billions of dollars in mark-to-market losses after this week’s unprecedented price spike, according to people familiar with the matter.
Xiang Guangda, who controls the world’s largest nickel producer, Tsingshan Holding Group, and is known as “Big Shot” in Chinese commodity circles, has closed out part of his company’s short position and is considering whether to exit the wager altogether, the people said.
Nickel rocketed to a record high above US$100,000 a tonne on Tuesday, driven in part by Tsingshan and its brokers’ activity, before trading was suspended.
While the exact scale of Xiang’s losses is unclear, Tsingshan’s short position on the London Metal Exchange (LME) is in the region of 100,000 tonnes of nickel, people familiar with the matter said. It could be even larger than that when positions taken through intermediaries are taken into account, people separately said. That means it would have suffered well over US$2 billion of daily losses at the most extreme point of nickel’s surge on Monday.
That would come on top of any losses incurred by the tycoon since he began building the short position late last year through closely held Tsingshan.
Xiang told Chinese news outlet Yicai that Tsingshan did not have any problems with its nickel trading. “We’ve received a lot of phone calls today. Tsingshan is an excellent Chinese enterprise, and our positions and operations do not have any problems.”
The LME suspended trading in nickel on Tuesday morning after one of the most dramatic price spikes in commodity market history. Prices had been ratcheting higher for weeks, amid fears of disruptions to supplies from Russia, the largest exporter of refined nickel.
The tightness in the market had been exacerbated by the presence of an unidentified trader who, according to exchange data, controlled somewhere between 50 per cent and 80 per cent of nickel warehouse warrants monitored by the LME as of last month.
Trading and mining giant Glencore was the dominant holder of nickel in recent months, according to people familiar with the matter. A Glencore spokesman declined to comment.
But this week the rally became a melt-up, with prices surging as much as 250 per cent in little more than 24 hours, to an all-time high of US$101,365 a tonne.
The superspike was driven by holders of short positions, including Tsingshan and its brokers, rushing to close them out. Tsingshan has been struggling to pay margin calls to its brokers, according to people familiar with the situation. It has been under growing pressure to meet the payments in recent days, the people said.
Traders must deposit cash, known as “margin”, with their brokers on a regular basis to cover potential losses on their positions. Brokers in turn must hold margin at the clearing house, LME Clear. If the market moves against those positions, they receive a “margin call” requesting further funds – and if they fail to pay, they can be forced to close their position.
On Monday, one of Tsingshan’s brokers, a unit of a state-owned Chinese bank, failed to pay hundreds of millions of dollars in margin calls on its nickel positions. The LME did not put it into default, instead giving it more time to pay. Those payments have now been made, a person familiar with the matter said on Tuesday.
The LME said on Tuesday that trades that took place in Asian hours before the suspension – when prices rose from around US$50,000 to above US$100,000 a tonne – would be cancelled. Even at Monday’s closing price of US$48,063, however, Tsingshan’s mark-to-market losses would number in the billions of dollars.
Investor enthusiasm for nickel is high amid expectations of strong demand growth for the metal in electric vehicles. This week’s spike in prices has played out principally on the LME, and many traders expect the price to return to more normal levels once the margin call chaos has been resolved.
Tsingshan, among other Chinese companies, is ramping up a wave of new battery-grade nickel capacity in Indonesia. Xiang began building the short position in part because he wanted to hedge rising output, but also because he believed the rally in nickel prices would fade this year.
Still, this week’s short squeeze is nonetheless likely to push costs higher for battery companies and stainless steelmakers, eventually feeding through into the price of everyday goods.
As such, if Tsingshan can weather the losses on its LME positions, the higher prices could yet benefit its core business of producing nickel and stainless steel.
About 70 per cent of the world’s nickel production is consumed by the stainless steel sector, while batteries take up a modest 5 per cent, according to S&P Global.
Indonesia accounted for around 37 per cent of global mined output last year, followed by 13.7 per cent of the Philippines, 9.2 per cent of Russia and 7 per cent of New Caledonia.
ANZ analysts attributed nickel futures’ price spike in the past week from around US$25,000 a tonne from a week ago to fears of supply disruptions amid major economic sanctions against Russia after its invasion of Ukraine.
“Russia issued an order saying it would restrict trade in some goods and raw materials in response to sanctions,” they wrote in a note on Wednesday. “However, it failed to detail which markets these related to.”
In 2020, Russia’s total refined nickel exports reached 115,000 tonnes, with most exports going to mainland China, where most supply was used in the stainless-steel industry, according to Rystad Energy senior analyst Susan Zou.
Due to the tremendous futures price hikes, suppliers have stopped making offers in mainland China, waiting for clarity in the market given current nickel prices cannot be justified purely on market fundamentals, she noted.
Author: Bloomberg, SCMP