According to a recent Bloomberg report, the man behind the historic March nickel squeeze walked away from the crisis with an estimated loss of $1 billion. To most, that figure sounds almost unimaginable. However, it’s a far cry from the more than $10 billion loss he faced when nickel prices surged past $100,000/mt. Instead, Xiang Guangda, owner of mining and steelmaking company Tsingshan Holding Group, managed to close out nearly all of his short positions almost four months later.
Guangda’s ability to withdraw with nearly all his assets intact and, for him, a manageable loss, was notably aided by a few big players. For instance, when nickel prices skyrocketed, the LME halted trading. That move allowed Guangda time to strike a deal with roughly ten banks and brokers attached to his short position. Perhaps even more crucially (and controversially), the LME canceled multiple transactions. This brought prices back to the previous day’s closing of just under $50,000. However, Guangda did not, in fact, begin closing his short positions when the exchange reopened. Instead, the deal he struck allowed him to hold off until prices dipped to more acceptable thresholds, capping his net losses and allowing him to remain very much a billionaire.
Damage Far-Reaching for Nickel Prices, Could Extend Months if Not Years
While Guangda appears “in the clear,” the damage of the squeeze extended far beyond the actual events. For one, the LME’s reputation seems severely, and perhaps permanently, harmed. Of course, the exchange was caught between a rock and a hard place. That said, it did choose a side. And that will always leave the other side angry.
Understandably, the exchange felt incredible pressure amid the chaos. According to the LME’s chairman, Gay Huey Evans, “had the LME not taken these decisions, the effect on the nickel market would have been intensely damaging and felt throughout the nickel value chain investment community.” Although it’s been denied, speculation persists that Beijing may have influenced LME’s parent company, Hong Kong Exchanges and Clearing Limited.
As the LME’s chosen winner walks away, the losers remain furious. On the one hand, the exchange has found itself the target of numerous lawsuits and investigations. On the other hand, the crisis triggered a retreat from the LME due to distrust and risk aversion among market participants. Open interest across the metals has trended downward since March. Its nickel contract, though still functional, stands as the most substantially damaged, with trading volumes roughly half of what they were.
Beyond the LME, the wider nickel market continues to struggle to find a fair value for trade hedges. This is largely due to low volumes harming liquidity and widening spreads. As no CME contract exists, India’s MCX and China’s SHFE stand as the only viable alternatives. Both, however, are priced in non-freely convertible currencies. The SHFE appears as the obvious beneficiary, but not necessarily to a substantial degree. Instead, the market remains shaken. In MetalMiner’s opinion, the true fallout of the nickel crisis will likely extend months, if not years.
NAS July Fuel Surcharge Rises to 51%
North American Steel’s fuel surcharge hit a new record in July as it climbed for the second consecutive month to 51% from 50% in June. The figure has more than doubled since May of 2021 amid record energy prices. The surcharge during the first seven months of 2022 now sits over 71% higher than what it was during the same period of 2021.
Fortunately, fuel prices are projected to see some relief in the near future. In fact, oil slid 2% last week to reach a 12-week low of just under $100 a barrel. That said, the only reason for this sudden drop is increased worries about a global recession. If that looming threat comes to fruition, there may be worse things to worry about than fuel surcharges.
By AG Metal Miner
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