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Chinese metals group wins respite from banks on nickel bet

Chinese metals group Qingshan has been breathing air by banking parties as it decides what to do with a negative gamble that has put the global nickel market in a storm.

Banks, including JPMorgan and Standard Chartered, have agreed not to close Qingshan’s position or make further margin calls – demands for additional cash to cover losses.

The standstill agreement will give both parties time to conclude a deal on a new secured credit line that the world’s largest stainless steel manufacturer can use for the “nickel margin and disposal requirement”.

In a rare public statement, the privately held company said that an “integral feature” of the agreement was “provision for existing hedging positions to be reduced by the Qingshan Group in a fair and orderly manner as exceptional market conditions subside.”

A number of people with knowledge of the discussions said that the banking counterparties were willing to provide a guaranteed credit line because of the strength of Qingshan’s business, which would benefit from high metal prices. Other banking sides to Qingshan’s excessive nickel gamble include Chinese lenders ICBC and China Construction Bank.

The London Metal Exchange suspended nickel trades last Tuesday and canceled trades after its comparison contract doubled to a high of over $ 100,000 a tonne, halting global trade in the metal.

Tsingshan was at the center of a rise in nickel prices after its bet on falling nickel prices collided with a rise in metal sparked by the war in Ukraine, forcing it to buy metal-related contracts on a huge scale.

The size of the position was not disclosed, but Qingshan faced potential losses of billions of dollars when trading was stopped, according to people with knowledge of the situation.

The LME has not said when trading will resume, but the stalemate agreement between Qingshan and the opposing parties to its scratched position may give the 145-year-old stock exchange the certainty it needs to reopen the nickel market.

Nickel is used to make stainless steel but its fastest growing market is in batteries that drive electric vehicles.

Many small and medium-sized brokers who act as intermediaries for clients of metal traders closely monitor Qingshan’s ability to withstand its margin calls. If the company is unable to meet these requirements and is shut down from its positions, many will also face large margin calls from their banks and the LME that they fear will not be able to meet.

Qingshan is ruled by the metal tycoon Xiang Guangda. Under his leadership the company went from a small stainless steel manufacturer in the coastal city of Wenzhou in the mid-2000s to the largest manufacturer in the industry.

It is also the world’s largest producer of pig iron nickel ore – a low cost alternative to refined nickel – and now it wants to build a nickel presence in battery grade.

Xiang began to accumulate its scratching position towards the end of last year when prices began to rise due to demand from automakers.

Like other commodities, nickel was destroyed because of the war in Ukraine with rising prices because of fears that supplies from Russia – the world’s largest producer of high-grade nickel – could be disrupted by Western sanctions on Moscow.

The LME was criticized for its decision to stop trading in nickel when the Canadian Mining Council on Monday called on the stock exchange to set a timetable for resuming trading.

“Without a stable, reliable, equitable and functional benchmark, this threatens to undermine global market confidence and integrity in the nickel industry and related downstream industries,” it read.

Chinese metals group wins respite from banks on nickel bet Source link Chinese metals group wins respite from banks on nickel bet

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