BEIJING (Reuters) – China’s Tsingshan Holding Group has reached agreements with two companies to swap its nickel products with a purer form of the metal to close out large short positions it holds on the London Metal Exchange (LME), state-backed Shanghai Securities News said.
The nickel giant, which faces billions of dollars of losses from its short position – a wager that prices will fall – on the LME, needs to source nickel in a form that is accepted by the exchange for physical delivery.
The LME was forced to halt nickel trading and cancel trades after prices doubled on March 8 to more than $100,000 after Tsingshan bought large amounts to reduce its short bets on the metal, spurring a price rally fuelled by the conflict in Ukraine.
The LME only accepts nickel cathodes, pellets, briquettes and rounds for physical delivery, while Tsingshan’s products nickel pig iron and nickel matte – an intermediate product that can be used in both stainless steel and batteries – cannot be traded on the exchange.
The Shanghai Securities News said Tsingshan will get a combined 4,000 tonnes of nickel warrants from two nickel users per month for its nickel matte, without mentioning other details and names of the companies.
Tsingshan did not respond to Reuters’ calls seeking comment.
Tsingshan said earlier this week that it had reached an agreement with banks under which they will not close out the company’s positions or make further calls to deposit extra funds with brokers, a practice known in financial markets as margin calls. Meanwhile, the producer will reduce its positions in an orderly manner.
It is unclear how long the standstill agreement will last and how many outstanding short positions Tsingshan still holds.
The company was said to have bets on lower nickel prices amounting to 300,000 tonnes on the LME at an average price between $18,000 and $19,000 a tonne before cutting exposure. Some Chinese state-backed media reported it still has short positions around 200,000 tonnes.
The London bourse resumed nickel trading at $45,590 per tonne on Wednesday and hit limit down of 5%.
Nickel prices on the Shanghai Futures Exchange ended up 7.3% to 222,170 yuan ($35,006.15) per tonne in afternoon trade.
Tsingshan’s 2022 nickel equivalent output is estimated at 850,000 tonnes. Its nickel matte production in Indonesia is nearly 8,000 tonnes per month, according to the Shanghai Securities News.
The company does not rule out the possibility of making such swap agreements with other nickel users, said the media.
($1 = 6.3466 Chinese yuan renminbi)
(Reporting by Min Zhang and Dominique Patton; Editing by Emelia Sithole-Matarise)
