The game of Xiang Guangda, China’s “nickel king,” was to use his influential position in the market to short the metal, wait for the price to fall, and then pocket the rewards when the value rose again.
But then Russian President Vladimir Putin invaded Ukraine and things got complicated — fast.
Russia is one of the world’s largest producers of nickel ore, a key ingredient in electric vehicle batteries.
As staggering Western sanctions were imposed over the invasion, the price of the silver-white metal soared to a record high of over $100,000 a ton.
That was too high for Xiang and the entire metals sector, forcing the 145-year-old London Metals Exchange (LME) to suspend trading for a week and nickel-dependent manufacturers struggling to digest the cost hike.
Stuck in its positions — reportedly holding at least 100,000 tons — Xiang’s company Tsingshan Holdings Group was suddenly on the hook by billions of dollars.
Tsingshan, the world’s largest nickel producer, was forced to buy back a large number of nickel contracts at higher prices to reduce its exposure.
A Bloomberg News report estimates the buyback contributed to a $8 billion loss, suggesting the company may need a bailout from Chinese authorities.
“Xiang is a smart player, but he was caught off guard by the Russian question,” said Li Bin, a nickel trader in Shanghai.
When nickel trading resumed last week, prices fell to around $37,200 a tonne – still 50 percent higher than in February – as volatility sweeps through the market.
“After the historic bottleneck, nickel is still struggling to find a price,” said Susan Zou, senior metals analyst at Rystad Energy.
– self-made tycoon –
The market for nickel, which is essential in the manufacture of electric vehicle batteries and a key alloy in stainless steel, is dominated by a handful of players.
This includes Tsingshan, which is headquartered on the east coast of China.
It was founded by Xiang, a self-made billionaire known as the “Nickel King” and “Big Shot” among Chinese nickel traders.
The story goes on
Xiang began his career as a mechanic at a government fishery and now owns two extensive nickel production facilities in Indonesia.
These include the Morowali Industrial Park, which covers 2,000 hectares with 44,000 workers and its own airport, and is seen as a guarantee of a cheap supply of ore to China’s Tsingshan blast furnaces.
After its short goes awry, Tsingshan must either pay off its debt or prove it has enough deliverable nickel to repay it in kind.
“We are closely watching his next move because he could still ruffle the markets,” said Li, the Shanghai-based nickel trader.
Those rising costs are already being felt by EV makers, including Tesla and 20 other Chinese competitors like Xpeng and BYD, all of which have hiked vehicle prices over the past two weeks citing a rise in raw material costs.
“The price and supply shocks have prompted major battery manufacturers to look for alternative metals to power electric vehicles,” said analyst Zou.
– Beijing to the rescue? –
Beijing could step in to save Tsingshan, Chinese media including financial news site Yicai reported, citing sources familiar with the matter.
There are discussions about allowing the company to swap its low-grade nickel products that don’t meet LME’s quality standards for a purer form of the metal from government stockpiles to meet its claims, Yicai said.
According to official figures, China holds an estimated 100,000 tons of nickel in state reserves. Tsingshan and China’s State Reserve Administration did not respond to requests for comment.
Xiang has stirred markets before, most notably in 2018 when he launched large quantities of nickel pig iron, a cheap alternative to pure nickel that can be used to make stainless steel.
“Xiang always believed that because he is one of the biggest players in the world with extremely low costs, he could keep the price of nickel under control,” said a former Tsingshan employee who asked not to be named.
“He has always bet that nickel prices will fall because his production costs in Indonesia are only $10,000 a ton.”
Now Xiang must decide whether to slowly unwind his bet and at what cost.
On March 14, Tsingshan said it had reached an agreement with the banks to hold onto the company’s nickel positions, signaling the billionaire was dogged to weather the crisis.
That could hit the LME further and lead to more price uncertainty for nickel, trader Li said, and pose challenges to battery makers trying to replace gasoline cars.
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