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Wednesday, February 1, 2023

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JPMorgan is biggest counterparty in Chinese tycoon’s nickel bet

JPMorgan Chase & Co. is the Chinese tycoon’s biggest nickel trading counterparty caught in an unprecedented short squeeze, putting the bank at the center of one of the most dramatic moments in metals market history.

Some 50,000 tons of the total nickel short position of XiangGuangda, of more than 150,000 tons, is maintained through an OTC position with JPMorganaccording to people familiar with the matter.

Based on that figure, the tycoon’s company, Tsingshan Holding Group Co., would have owed JPMorgan about $1 billion in margin on Monday. The nickel producer has struggled to pay margin calls to its banks and brokers, Bloomberg reported this week.

JPMorgan is leading negotiations between Xiang and about 10 banks, and brokers through which they hold their short nickel position, the people said, asking not to be identified as the talks are private.

The difficulties of tsingshan to pay their margin calls have put their banks and brokers in a difficult situation, as they have had to make heavy margin calls on the London Metal Exchange to cover their short positions on the stock market. If Tsingshan abandons its commitments, the banks could lose billions of dollars.

The other banks and brokers are BNP Paribas SA, Standard Chartered Bank Plc, CCB International Holdings, ICBC Standard Bank Plc, United Overseas Bank Ltd., DBS Group Holdings Ltd., BOC International Holdings Ltd. and brokerage firm Sucden Financial Ltd..

Spokespeople for JPMorgan, BNP Paribas, Standard Chartered, Sucden, UOB, DBS and ICBC Standard Bank declined to comment. BOCI and CCBI spokespersons had no immediate comment.

To be sure, the crisis could still be resolved without loss for Xiang and his banks. As the world’s largest nickel producer, Tsingshan stands to benefit from higher prices if it can weather the storm.

And if Xiang maintains his short position, as he has told his banks, and nickel prices decline when the London Metal Exchange reopens, the amount of money he owes his banks and brokers would also drop sharply.

Tsingshan is short about 30,000 tonnes of nickel directly on the London Metal Exchange, through brokers CCBI, ICBC Standard Bank and Sucden, the people said.

The rest of the short position of more than 150,000 tonnes is held through bilateral deals with banks such as JPMorgan, the sources said.

Many companies prefer to trade through these types of positions “off-exchange”which involve dealing only with the bank and are also subject to far fewer disclosure requirements.

Banks, in turn, generally offset their risk by placing short positions on the London Metal Exchange.

JPMorgan, which is the world’s leading metals trading bank, has the largest short position on the London Metal Exchange, according to people familiar with the matter.. That position is held for client business and there is no suggestion that the bank is placing its own short bets on nickel prices.

Bloomberg reported this week that Tsingshan has obtained credit promises from banks, including JPMorgan, that could allow him to avoid defaulting on his margin calls.

However, the discussions continue. Xiang has told banks and brokers that he would like to maintain his short position, and has proposed pledging some of Tsingshan’s assets in Indonesia as collateral for money he owes on margin calls, people familiar with the matter said on Thursday.

Source: Gestion


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