HISTORIC NICKEL RALLY SHUTS DOWN LME AND PLACES TSINGSHAN IN THE...

HISTORIC NICKEL RALLY SHUTS DOWN LME AND PLACES TSINGSHAN IN THE SPOTLIGHT

Nickel
A record-breaking rally in nickel prices that led the London Metal Exchange to halt trading on Tuesday is putting increased pressure on the Chinese stainless steel producer Tsingshan and its billionaire co-founder.
Tsingshan, the world’s largest stainless steel producer, is rumoured to have been short nickel before a 238% rally in the price of the metal this week which saw prices top $100,000 a tonne.
That could put the company in a difficult position, as it is not approved to deliver the nickel is produced into the London Metal Exchange, to close out its position. That raises questions about the LME’s trading structure, especially as more nickel production and investments are geared towards use in electric vehicle batteries.
“It can’t deliver against the LME because of the confines of the exchange structure which is not geared for the EV revolution,” Caspar Rawles, head of data at Benchmark, said. “Tsingshan’s recent investments have been in battery nickel projects but the exchange is rigid in requiring high purity Class 1 metal.”
Tsingshan, which has operating revenues of around 293 billion RMB ($46 billion), not only produces stainless steel but is also a producer of nickel for the battery market via projects with Huayou Cobalt and Gem Co, as well as its own capacity to convert nickel pig iron into matte.
Nickel supply for batteries from Indonesia, where Tsingshan is a big investor, is set to increase more than fivefold this year, as Chinese-backed projects come into production. That was set to ease concerns about a shortage of battery-grade nickel this year.
But the Russian invasion of Ukraine last month has upended that consensus by raising fears that Russian metal will become untouchable due to sanctions risk. Russia’s Norilsk Nickel supplies around 20% of the world’s high purity class 1 nickel.

LONDON METAL EXCHANGE SHUTS DOWN
The LME said on Tuesday that trading in its nickel contract would be halted after prices rose above a record high of $100,000 a tonne in Asian trading. Recent trades would also be cancelled, it said. The exchange was considering a “multi-day” closure, it said.
In addition, the LME said it would defer delivery of all physically settled nickel contracts due for delivery on 9 March and any subsequent dates.
“The current events are unprecedented. The LME is committed to working with market participants to ensure the continued orderly functioning of the market,” the LME said.


As nickel prices rose Tsingshan would have had to meet high margin calls or close out its short position. Last Friday the LME raised margin requirements for nickel contracts by 12.5% to $2,250 a tonne.
Delivering metal into the exchange to settle the position is also difficult because the company is not an approved brand of the LME.
The LME requires nickel that is 99.80% purity and in the form of cathodes, pellets, briquettes and rounds. Tsingshan’s nickel matte, however, has a 70% to 75% nickel purity.
The only Chinese companies eligible to deliver metal into the LME’s warehouses include Yantai Cash and state-owned mining giant Jinchuan.
If Tsingshan is forced to close its short positions it could make a loss of $2 billion, according to Chinese media reports.
“There are indeed some actions overseas, and we are actively coordinating them,” Xiang Guangda, chairman of the board of Tsingshan, told Chinese media on Tuesday. “Today, we have received many calls, and relevant state departments and leaders are very supportive of Tsingshan. Tsingshan is an excellent Chinese enterprise. There are no problems with positions and operations.”