JPMorgan leads talks to stem damage from nickel crisis

 Over the weekend, some of the world’s biggest banks worked to resolve a crisis in the nickel market that left them saddled with billions of dollars in debt from a Chinese metal giant.

JPMorgan Chase JPM -2.25%

& Co., Standard Chartered STAN -0.41%

PLC and BNP Paribas SA

BNPQY -3.09%

is among a number of banks and brokers looking to strike a deal with Tsingshan Holding Group, people familiar with the discussions said. Trades placed by the Chinese steel and nickel producer on the London Metal Exchange contributed to an uncontrollable rise in prices, prompting the exchange to halt trading and cancel eight hours’ worth of trades. on Tuesday last week.

Nickel, a type of cog in the world economy used in stainless steel and electric vehicle batteries, has not been traded since.

Several people familiar with the discussions said the crisis had spilled over into the financial system, leaving Tsingshan’s banks and brokerage firms with several billion dollars in unpaid deposits, the companies said. Prepaid cash brokers required to execute the transaction, several people familiar with the discussions said.

Some people familiar with the discussions said talks among Tsingshan’s creditors, led by JPMorgan, were focused on extending the Chinese company’s line of credit so it could pay them out. deposit they owe. Some say a plan is under discussion to secure the loan against Tsingshan’s steel and nickel assets in China and Indonesia.

Despite Tsingshan’s troubles, with near-record nickel prices, such credit expansion Some say it can be highly profitable given the company’s vast production capabilities.

Nickel prices started to rise after Russia, a major metal producer, invaded Ukraine, a prime example of how war and Western sanctions have affected world commodity markets, pushed metals and energy prices to multi-year highs. .

The protest turned into a crisis for the LME last week. Producers like Tsingshan often sell forward contracts as a way to lock in the physical price of the nickel they mine and refine. In fact, they take positions that profit when the price falls and lose money when the price rises.

Some of Tsingshan’s brokers were desperately trying to buy back those nickel contracts to avoid losses and to avoid escalating margin calls. That buying force pushed the benchmark 3-month forward contract price up 66% in a single session.

Wild trading continued early last Tuesday as brokers continue to try to cover the short positions they hold on behalf of Tsingshan and other producers. Meanwhile, hedge funds and other participants have been aggressively buying nickel, pushing the market higher, people familiar with the trade said.

At one point, the price of nickel more than doubled to a record of more than $100,000 per ton. After receiving calls from several smaller brokers saying they would default at 9am margin calls if prices remained at record levels, the LME suspended the market shortly after 8am. local, said a person familiar with the exchange.

However, shortly after noon local time, the LME unleashed a bomb: To save brokers from margin calls they could not afford, it canceled trades that took place before on pause, wiping out $3.9 billion in transaction funds.

The decision angered money managers, who thought they had profited from the rally.

“It is perfectly legal to pause trading and give members time to get the capital they need back,” said Jordan Brooks, co-head of macro strategy at AQR Capital Management. “What I think has struck a chord with us and other participants in the market and the financial industry as a whole, is the decision to write off trades that happened without coercion and in good faith. solstice.”

However, the suspension and canceled transactions have given the market time and space to clean up the damage and prevent a larger reverberation.

After turning the clock back on Tuesday’s trades, the exchange said the brokers had paid in full the margin they owed.

Tsingshan still owes its brokerage firms, including JPMorgan, Standard Chartered and BNP as well as a state-owned unit of China Construction Bank. Corp.

, several people familiar with the discussion said. Bloomberg News previously reported on the creditor talks.

“In the interest of systemic stability and market integrity, we have suspended markets as soon as possible and canceled transactions at a time when the LME no longer believes that prices reflect the physical market. basic substance,” said a spokesman. She said the exchange is working to open the market as soon as possible.

The company whose business caused the crisis was founded by businessman Xiang Guangda and his wife, He Xiuqin, as car window manufacturers in 1988. Mr. Xiang remains the controlling shareholder of the company. Tsingshan, is now one of China’s largest privately held companies.

As the Chinese economy accelerated in the 2000s, the availability of nickel posed a barrier. China’s appetite for shoveling metal into steel mills drove prices above $50,000 a tonne in 2007, a record maintained until last week.

Tsingshan, a stainless steel producer, has addressed China’s nickel shortage by pioneering rotary electric furnaces to produce a low-cost material known as nickel-cast iron. This development has affected prices and has been hailed by the local media as a triumph for the Chinese metal industry.

China’s Belt and Road Initiative, President Xi Jinping’s flagship infrastructure strategy, has helped fuel Qingshan’s development. In 2013, Mr. Xi and then-Indonesian President Susilo Bambang Yudhoyono attended the official launch of one of Indonesia’s Tsingshan industrial parks.

Metal producers often sell futures contracts on exchanges to lock in prices, known as hedging. However, Tsingshan has sold and bought nickel contracts over the past decade, people familiar with the company said, making the operation more like trading.

These people said that at the beginning of last year, the company began to accumulate a short position. It has released statements on its website and dashboards showing that the market is unstable and prices will drop. Tsingshan’s position equates to having sold about 190,000 tonnes on the LME, traders, bankers and analysts estimate. That would be worth $9.1 billion at last Monday’s closing price.

https://thehiu.com/jpmorgan-leads-talks-to-stem-damage-from-nickel-crisis/