A nickel-trading failure raises three big questions

T.He is trading A stunning activity of the product that makes it visible to the public only in times of extreme objection. It was then that names like Hunt Brothers, who tried to corner the Silver Market in 1980, and Hamanaka Yasuo, or “Mr. Copper,” who caused huge losses to Sumitomo, a trading house in Japan, in 1996, became household names. Jiang Guangda, a Chinese tycoon known as the “Big Shot”, entered the news this month with a position on nickel that went badly wrong. The result is one of the biggest tremors in the 145-year history of the London Metal Exchange.LME) It also brings China, which is keen to exercise more power in commodity transactions, has gone crazy in the face of the free market.

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In the clustered world LME, Clear some information about the incident. One is the price of nickel before Russia’s invasion of Ukraine, which has risen since the West imposed sanctions on Russia. Another was the short-term exposure to Mr. Jiang’s firm, Xinshan. LME About 180,000 tons of nickel, which was supposed to benefit from lower prices. They didn’t, a short-covering scramble for nickel on March 8th briefly pushed the price above $ 100,000 per tonne, throwing Tsingshan’s potential losses into billions of dollars. At that time LME Nickel trading suspended, canceling all trades that occurred overnight. When the moratorium was lifted on March 16, nickel prices plummeted LME To suspend business again, adds chaos.

Three big questions remain. How important is the role of the lion in the defeat? Has this problem provoked Chinese intervention? And there is LME Bungled his response? Everything will be a matter of verification and selection.

According to media reports, Tinshan is the main character in the play. Whether or not its short-selling represents the normal activity of one of the world’s largest nickel producers to hedge its output, or create a rash bet. What is clear is that the nickel it produces is not the type of metal nickel that is traded LME, Meaning there was a discrepancy between its shorts and longs. As its losses increased, its brokers forced it to pay more cash or “margins”. The size of its location meant that they faced large margin calls, which made their problem look like a tingle. On March 15, Tsingshan said it had reached a stalemate with its creditors until it downgraded its position in an orderly manner.

In the market, rumors have spread that China has been affected LMEIts activities, partly because of the Hong Kong Exchange and clearing (HKX) Owns the exchange, and is also strategically important for the Tsingshan country, because its nickel goes into electric-car batteries. The LME Refuse to take pressure from HKX. It has been granted extra time on March 7th CCBI Global, a Chinese broker in Singshan that is a member LME, To raise funds from its state-owned parent, China Construction Bank, to cover margin calls. That would be a wise thing to do. It knew that rich banks could provide funds. Some traders wonder if it would be tolerant of a non-Chinese entity. Since then, Chinese authorities have reportedly fought hard to stop Xinshan’s nickel assets from falling into the hands of non-Chinese speculators.

The most intensive verification can be read LME By itself, especially during the decision to suspend nickel trading and cancel the overnight trade that was rumored to be worth billions of dollars. It said it closed trading on early March 8 when it felt the nickel market had become turbulent. It added that the decision to cancel the transaction that day was due to the large price moves creating a systematic risk in the market, which raised the concerns of multiple defaulters as they struggled to meet the margin calls of member-brokers.

That last decision is the bone of contention. Critics say it owns shorter positions, such as physical producers and their banks, which may sell at higher profits than long position holders. Why was this step taken to protect the brokers? LME There is a default fund that its members can access in times of trouble. “The decision to close the business… it will destroy long-term confidence LMEYao Hua said that off AQR, An asset manager whose trade was canceled on March 8th. “If you want AQRS of this world [in the market]”You can’t interfere when they make money and it hurts your brokers,” he said. LME.

The LME It has since set daily limits on price movement (which exceeded when it briefly resumed nickel trading on March 16). This is another sign of interference by an exchange that boasts of its free-market nature. The owner of Hong Kong, China is looking at his shoulder, will undoubtedly approve. 3

This article was published in the print edition section of Finance and Economics under the headline “When China joined the free market”.

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