Pravin Menon, Ming Zhang and Francisca Nangoy
– Chinese tycoon Xiang Guanda must find a way to bail out his Tsingshan Holding Group from the crisis after his bet on nickel prices backfired, causing more volatility in the metal needed to make electric cars.
One of the world’s largest nickel producers faced huge losses on its short positions after prices soared more than $100,000 a ton last week and forced the London Metal Exchange to suspend nickel trading.
Tsingshan must either pay off its outstanding short positions, which could be as high as $8 billion, or prove it has enough nickel to pay it back in kind.
Beijing may intervene to rescue Qingshan, a source familiar with the matter told Reuters. China may trade some of its high-grade nickel stocks for low-nickel iron (NPI) produced by Tsingshan to meet LME quality standards. Two analysts estimate that there are about 100,000 tons of nickel in China’s state reserves.
Qingshan and China State Reserves Administration did not respond to requests for comment.
Tsingshan has featured in market fluctuations before.
It spurred prices down last year with the surprise news that it would be supplying nickel matte to battery material manufacturers, potentially solving a key EV bottleneck by increasing battery-quality supplies more cheaply.
Betting that prices will fall, Qingshan started going short last year. The bet backfired in part as Russia’s invasion of Ukraine sent metals prices soaring, putting pressure on large shorts, including Tsingshan.
“The markets felt that (Tsingshan) was going to make a move, but they probably did it too soon… a quarter or so early and nobody expected what happened in Ukraine,” said Angela Durrant, chief nickel analyst Wood Mackenzie. .
Tsingshan suggested that foreign elements could drive up nickel prices.
“Foreigners have some kind of action, and we are actively coordinating [with related parties]”, China Business News quoted Xiang as saying on March 8.
The story goes on
The market fluctuations did not affect Tsingshan’s operations in Indonesia, a mining company source familiar with the situation told Reuters.
For Indonesia, Tsingshan is the vehicle to realize its ambition to become a one-stop shop for electric vehicle battery ingredients, and the company has delivered projects at lightning speed. Western firms often privately complained about the access and resources that Qingshan received in the country.
“The government has ambitions in Indonesia, they want to build a center for the production of batteries for electric vehicles. That’s why you see industry support policies,” the source said. “We are affected by COVID but not affected by this (short-term impact).”
Qingshan is also seen in Southeast Asia as the epitome of China’s Belt and Road Initiative, President Xi Jinping’s massive infrastructure program.
Unlike the privately owned Tsingshan, several large projects led by Chinese state-owned companies have been mothballed due to price gouging, corruption and debt sustainability issues.
MARKET DESTROYER
Founded in 1988 in Wenzhou, Tsingshan started out as a manufacturer of stainless steel and automotive windows and doors.
But her fortunes changed when the 64-year-old Xiang began to explore Indonesian markets in 2009. Over the next decade, she shocked the global nickel industry with cheap nickel pig iron.
The company has opened facilities in Indonesia, the world’s largest nickel producer, from nickel sulphate to nickel matte, an intermediate product that can be used in both stainless steel production and batteries. Tsingshan leads Indonesia’s two major nickel hubs, including the Morowali Industrial Park, which employs over 40,000 people and covers 5,000 hectares with an airport, mineral processing plants, a port and a VIP hotel.
Facility in Sulawesi plans to produce 850,000 tons of nickel equivalent this year and 1.1 million tons in 2023.
“There was nothing on this site in 2015…so they did something absolutely wonderful,” Durrant said. “Away from higher Chinese power (cost), moving everything to Indonesia was a masterstroke for them.”
The industry attributes much of this success to Xiang.
He has become known as a market disruptor capable of “taking the world by storm,” said Stephen Brown, an independent nickel consultant in Canberra, who spent two days touring Tsingshan’s production facilities with Xiang in 2014.
Xiang opposes high nickel prices and aims to become a low-cost producer of nickel and stainless steel, Brown said.
“I don’t think this crisis will lead to too many changes in Qingshan’s strategy,” he added.
Market sources said that although Tsingshan has reduced its positions, it is unlikely that it will completely close all of its positions.
China’s state-backed Securities Daily reported on March 9 that Tsingshan had rolled out “enough spot products” for shipping, replacing its nickel matte with domestic nickel plates.
LME allows the supply of nickel cathodes, including lamellar ones, and briquettes.
“There are not many spot nickel products on the market, it is unlikely that Tsingshan will even be able to get 100,000 tons,” said a Guangdong-based analyst who declined to be named.
(Additional reporting by Ed Davis and Dominic Patton; editing by Diane Kraft)