China’s Tsingshan Seeks to Escape Global Nickel Market Crisis Unscathed

Tsingshan Holding Group is doing its best to defuse the crisis and is in negotiations with various parties to coordinate resources so as to resolve its predicament of being unable to deliver an estimated short position of 150,000 tons of nickel due to a lack of spot product without incurring any losses, China Securities Journal reported today, citing a person with knowledge of the matter.

Top executives will leave for Beijing soon to meet related parties and hammer out a solution as soon as possible, the report said.

Tsingshan, which insists its operations continue as normal, has been caught up in a commodities maelstrom in recent days, during which the London Metal Exchange halted all trading of the metal on March 8 due to wild fluctuations in prices. Nickel futures prices on the London bourse jumped almost three-and-a-half times to USD101,365 a ton that day from the day before.

The world’s second-largest nickel producer has over 150,000 tons of nickel short positions, 30,000 of which are on the London exchange, Bloomberg reported on March 11. It has been struggling to pay margin calls to its banks and brokers and is at risk of losing as much as USD12 billion should it close out its short positions according to calculations based on extreme pricing, Securities Daily reported on March 9.

Refusing to bow to pressure, the metal giant said last week it had enough spot product to meet delivery. However, given that overseas and domestic inventories are so low, it is hard to believe it possible for the company to secure that much supply over such a short period, industry insiders told Yicai Global.

"The banks are likely to advance payments to Tsingshan as they are also caught up in the crisis and the Wenzhou, eastern Zhejiang province-based has enough collateral,” an analyst told Yicai Global.

Nickel futures traded in London may slump after the bourse resumes trading, as prices have now deviated considerably from market fundamentals, the person said. This would be a boon for Tsingshan as it would owe a lot less money to banks and brokers.

But should the market resume trading before Tsingshan closes its short positions, the brutal squeeze could be repeated, he added.

Swiss commodity futures giant Glencore and major Chinese nickel producer Jinchuan Group have both denied playing any part in the turmoil.