LONDON: China's Tsingshan Holding Group bought large amounts of nickel to reduce its small bets on the metal and risk costly margin calls, turbocharged a record rally from the conflict in Ukraine, three sources familiar with the matter said. he said.
Tsingshan, one of the world's largest nickel and stainless steel producers, began taking a short position in the nickel market last year - a bet that would cause prices to drop.
Moscow's invasion of Ukraine and the West's moves to approve Russia, a major major supplier, have already rapidly electrified the nickel market. Prices doubled to a record high of $100,000 a tonne in a matter of hours on Tuesday, prompting the London Metal Exchange (LME) to close trading. So far this year, it is up nearly 400 per cent.
Price volatility increased pressure on holders of large short positions, who were already facing calls to deposit additional funds with brokers, a practice known in financial markets as margin calls.
The privately held company Tsingshan and other 'shorts' faced large margin calls on their smaller bets after LME asked companies to cover their exposure to the fall in nickel prices, three sources said. Deposit amount increased.
Tsingshan and LME declined to comment.
One source said Tsingshan's bet on low nickel prices was around 300,000 tonnes, with an average price of between $18,000 and $19,000 a tonne. Prices for stainless steel and the metal used in electric vehicle batteries were last in that range in December.
Reuters could not determine how big Tsingshan's short position is currently, after deducting its exposure.
LME on Friday announced that it is raising margin requirements for nickel contracts by 12.5 per cent to $2,250 per tonne. The additional charge begins at the close of trading on Tuesday.
According to Reuters calculations, the capital required for 300,000 tonnes of nickel at $2,250 per tonne would be $675 million.
Late on Monday, the LME allowed traders to defer delivery obligations on all of its main contracts - including nickel - an unusual move that underscores the pressure on commodities typically brought about by moves to isolate Russia financially. .
Prices of oil, gas, wheat and a range of metals, including aluminum and palladium, have soared since the invasion, increasing costs for companies and consumers and threatening a nascent recovery from the coronavirus pandemic.
If nickel prices remain high, it could complicate the energy transition with higher costs to produce electric vehicle batteries.
(Additional reporting by Eric Onsted in London, Beijing Newsroom and by Min Zhang in Beijing; Editing by Carmel Krimins)