Even the roller-coaster world of commodities trading has rarely seen anything like nickel’s spectacular blow-out. The metal that ends up in goods from kitchen appliances to electric-vehicle batteries rocketed 250% in just two days, prompting a trading halt in London March 8 and leaving a short-squeezed Chinese tycoon, Xiang Guangda, facing potential losses in the billions of dollars. The founder of Tsingshan Holding Group Co. is suddenly famous well beyond the niche metal he’s come to dominate. He is nickel’s big short, and now he has to decide whether and how to unwind a bet that’s gone terribly wrong.
1. Who’s the ‘Big Shot’ with the big short?
In Chinese commodities circles, Xiang is known as “Big Shot” because of Tsingshan’s unrivaled clout in nickel production and trading. Like many modern Chinese tycoons, his roots are in hard-scrabble entrepreneurship: in his case, a late-1980s business making frames for car windows. He started trading stainless steel in the early 1990s -- that grew quickly as China urbanized rapidly. After turning to producing stainless steel, Xiang took on a singular mission: making the metal as cheap as possible to produce. Through a series of technological innovations, he upended how and where the raw material -- nickel -- gets made. About a decade ago, he made major investments in Indonesia, turning Tsingshan into the world’s top nickel producer. That, together with a penchant for big bets, means his decisions regularly rattle markets. He helped drive prices sharply higher in 2019 by snapping up inventories, and triggered a brief tumble in early 2021 after unveiling a cheaper way to produce nickel for high-performance EV batteries.
2. Why is he shorting nickel?
Tsingshan started betting that prices would fall in 2021 in part because Xiang expected a nascent surge in nickel prices to fade, according to people familiar with the matter. The tycoon has long believed that because he was the world’s biggest player with ultra-low costs, he could wield unprecedented influence over the nickel market, the people said. He had a rule of thumb that whenever prices rose above $20,000 he would consider shorting nickel, the people said, because his production costs in Indonesia were as low as $10,000 a ton.
3. Why did the market go so wild?
The spike in prices was fueled by a powerful cocktail of geopolitical surprise and the peculiarities of the 145-year-old London Metal Exchange. War in Ukraine and sanctions on Russia have upended commodities markets, not least in nickel where Russia is a significant producer. As prices went up, shorts like Tsingshan hurried to exit positions. But they were at the mercy of big traders who demanded higher and higher prices, resulting in a “short squeeze.” Xiang himself was quoted by Chinese media saying “foreigners making some moves” were behind nickel’s spike. There were also LME margin calls, where brokers with deep paper losses must offer up extra funds or be forced to liquidate their clients’ positions at the elevated prices. Tsingshan and others struggled with the margin calls, and with prices shooting up to more than $100,000 a ton at one point on March 8, the LME suspended trading. The day’s canceled trades were worth about $3.9 billion according to Bloomberg calculations -- but the turmoil had put some of the LME’s participants at risk of failure.
4. What’s at stake for Xiang?
Xiang incurred mark-to-market losses of at least $2 billion on March 7 alone, and his short position through Tsingshan was still in the region of 150,000 tons as of March 10. The LME has begun an unusual process in which it wants to match longs and shorts at agreed prices, in order to reduce outstanding positions and minimize the risk of a greater squeeze to come. Xiang has to decide how much of his short position to exit, and negotiate a price for doing so. If he decides to weather the storm instead, there’s the risk of facing even bigger margin calls, steeper losses and perhaps more chaos on the LME.
5. So what’s he likely to do?
Early signs suggest he wants to weather the storm. He’s told banks and brokers managing his nickel trades that he still thinks nickel prices will fall, and that he doesn’t intend to reduce his position, according to people familiar with the matter. The LME also noted that were was little appetite for a voluntary agreement “particularly from those with short positions.” That would be a bold move in keeping with a career-long belief in cheap nickel, but much may depend on whether banks are willing to finance the continued risk. Another option -- for Tsingshan to deliver its obligations in the form of hard metal -- is complicated by the fact that the company’s own output doesn’t match the LME’s product specifications.
6. What’s the impact beyond nickel?
Not only is nickel a crucial element in everyday appliances, but it’s also important for the world’s transition away from fossil fuels. Higher prices for nickel mean higher costs for the battery-makers and auto giants in the midst of electrifying the world’s car fleet. Elon Musk, Tesla Inc.’s chief executive officer, once said that nickel was the metal he worries about most. Also, the fact that such a vital commodity can rocket in price so suddenly because of machinations on a relatively obscure exchange might also grab the attention of regulators.
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