The spike in nickel prices to more than $100,000 per tonne last week has become a nightmare for Chinese tycoon Xiang Guangda. Because of this, the business of the Tsingshan Holding Group, which he operates as the world's top nickel producer, faced heavy losses on short positions.
Moreover, the London Metal Exchange (LME) has stopped trading nickel. As a result, Tsingshan had to pay off its outstanding short position of around US$ 8 billion. Or the company must be able to prove that it has enough nickel that can be shipped to pay in kind.
"Beijing can step in to save Tsingshan," a source familiar with the matter told Reuters.
China could swap some of its high grade nickel reserves for the low grade nickel iron (NPI) produced by Tsingshan to help meet LME quality standards. China is estimated to hold about 100,000 tonnes of nickel in state stockpiles, two analysts said.
Tsingshan and China's state reserve administration did not respond to requests for comment.
Last year Tsingshan had forecast a drop in prices for its nickel product, which can be used as a battery material. This could potentially break a major bottleneck for electric vehicles by increasing battery supply in a cheaper way.
Betting prices will fall, Tsingshan started building short positions last year. The bet backfired in part because of Russia's invasion of Ukraine that sent the metal's price soaring, putting pressure on holders of large short positions, including Tsingshan.
"The market sensed that (Tsingshan) was going to move, but they probably did it too early. Nor was anyone anticipating what was happening in Ukraine," said Angela Durrant, principal nickel analyst at Wood Mackenzie.
Tsingshan had suspected foreign elements might drive up nickel prices. Xiang stated that foreigners do have some actions and he is actively coordinating with related parties.
"The market turnaround has no impact on Tsingshan's operations in Indonesia," a mining company source familiar with the matter told Reuters.
For Indonesia, Tsingshan is a means to fulfill its ambition to become a one-stop shop for electric vehicle battery materials. The company has executed the project at lightning speed. Western companies have often privately complained about Tsingshan's access and resources in the country.
"The government has ambitions in Indonesia, they want to build a battery hub for electric cars. So look at policies to support the industry," said the source.
Just so you know, Tsingshan was founded in 1988 in Wenzhou by starting stainless steel production and manufacturing car windows and doors. But his fortunes changed when Xiang, 64, started exploring the Indonesian market in 2009. Over the next decade, he rocked the global nickel industry with cheap nickel pig iron.
It established a facility in Indonesia, the world's largest nickel producer, with outputs ranging from nickel sulfate to nickel matte, an intermediate that can be used in stainless steel and batteries.
Tsingshan spearheads Indonesia's two major nickel centers, including the Morowali industrial park, which employs more than 40,000 people and spans 5,000 hectares with an airport, mineral processing plant, port and executive visitor hotel.
Its Sulawesi facility aims to produce 850,000 tonnes of nickel equivalent this year and 1.1 million tonnes by 2023.
"There was nothing on the site in 2015. So they did something truly magical. Moving away from China's higher power (cost) moving everything to Indonesia was a masterstroke for them," Durrant said.
The industry praised Xiang's success a lot. Steven Brown, an independent nickel consultant in Canberra, said he was known as a market disruptor who could shake the world. Because Xiang opposes high nickel prices and remains a low cost producer of nickel and stainless steel.
"I don't think this crisis will result in too many changes in strategy from Tsingshan," he added.
Market sources said although Tsingshan has cut its exposure, it is unlikely to completely cover all of its positions.
Subscribe Daily Post or Follow Google News to update information quickly, Thank you..!!
