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 absorb the rewards when the value rebounded.
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 component of batteries for electric vehicles.
As concussive Western sanctions against the invasion hit, the price of the silver-white metal soared to a record high above $100,000 a ton.
It was too high for Xiang and the entire metals industry, forcing the 145-year-old London Metals Exchange (LME) to suspend trading for a week and leaving nickel-dependent manufacturers struggling to digest the skyrocketing costs.
Locked in place – reports estimate it held at least 100,000 tons – Xiang’s company, Tsingshan Holdings Group, suddenly found itself at the mercy of 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 takeover contributed to an $8 billion loss, suggesting the company may need a possible bailout from Chinese authorities.
“Xiang is a savvy player, but he was caught off guard with the Russian issue,” said Li Bin, a nickel trader in Shanghai.
When nickel trading resumed last week, prices plunged to around $37,200 a ton – still 50% higher than in February – as volatility rippled through the market.
“After the historic crisis, nickel is still struggling to find a price,” said Susan Zou, senior metals analyst at Rystad Energy.
The market for nickel, essential for making batteries for electric vehicles and a key alloy for stainless steel, is dominated by a handful of players.
These include Tsingshan, which is headquartered on China’s east coast.
It was founded by Xiang, a self-made billionaire known to Chinese nickel traders as “Nickel King” and “Big Shot”.
Xiang began his career as a mechanic in a state fishery and now has two sprawling nickel manufacturing centers 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 for China’s Tsingshan kilns.
After his shorts go bad, Tsingshan must either repay his debts or prove he has enough deliverable nickel to repay in kind.
“We are watching his next move closely as it could further disrupt markets,” said Shanghai nickel trader Li.
Those rising costs are already being felt by electric vehicle makers, including Tesla and 20 other Chinese rivals such as Xpeng and BYD, all of which have hiked vehicle prices in the past two weeks citing rising raw material costs.
“Price and supply shocks have caused major battery makers to seek 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 people familiar with the matter.
Discussions are underway to allow the company to exchange its low-grade nickel products that do not meet LME’s quality standards for a purer form of the metal held in state inventory to settle its claims, Yicai said.
China is estimated to hold about 100,000 tonnes of nickel in state reserves, according to official data. Tsingshan and China’s State Reserves Administration did not respond to requests for comment.
Xiang has switched markets before, most notably in 2018 when it launched large volumes of nickel pig iron, a cheap alternative to pure nickel, which can be used to make stainless steel.
“Xiang has always believed that because he is one of the biggest global players with ultra-low costs, he can keep the price of nickel under his control,” said a former Tsingshan employee, who asked l ‘anonymity.
“He has always bet on falling nickel prices because its production cost in Indonesia is as low as $10,000 a ton.”
Now Xiang must decide whether or not to slowly unwind his bet and at what cost.
On March 14, Tsingshan said he had reached an agreement with the banks to keep the company’s nickel positions, signaling that the billionaire was trying to get out of the crisis.
That could beat the LME further and lead to greater uncertainty in nickel prices, trader Li said, and create challenges for battery producers trying to replace gasoline-powered cars.
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