China stainless steel mogul fights to avoid a second collapse
A debt crisis is threatening the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry.
Nickel price dropped by the maximum allowed for a third day in another glitchy opening for trading in London, as the price continues its retreat from an unprecedented short squeeze last week.
Nickel dropped 12% to the daily limit of $36,915 a tonne, although at least three trades went through at a price below the lower bound set by the exchange, according to Bloomberg data. Just after 8:00 am, three contracts traded at $36,865 a tonne.
Several traders said they expect the market to begin trading at around $30,000 a tonne – a level more in line with current prices on the Shanghai Futures Exchange, which has remained open through the LME’s suspension.
[Click here for an interactive chart of nickel prices]
The price now stands 64% below the record price reached on March 8 amid an unprecedented short squeeze in trades that were later canceled by the LME.
Some believe the price will go lower still. While almost no contracts have traded since the LME reopened the market on Wednesday, the exchange’s order book on Friday morning showed more than 10,000 sell orders — equivalent to 60,000 tonnes of nickel — at the limit-down price of $36,915.
“With a massive 60,000 tonnes of longs scrambling for the exit without any takers we don’t see LME catching a bid until at least $25,000 or below,” said Anant Jatia, chief investment officer at Greenland Investment Management, a systematic commodity fund with over $1 billion in assets.
The orderbook shows that “most longs just want out of this contract,” Marex’s Alastair Munro said in a note.
On Thursday, there was trading in April put options — which give the buyer the right to sell futures at a pre-determined price — at $23,000 a tonne.
Related: LME rips up its free-market rule-book to tame wild metals – Andy Home
In theory, traders could seek to buy nickel on the LME in order to arbitrage between the Chinese and international markets, if LME prices fall far enough below those on Shanghai.
Still, that implies further significant falls. On Friday, nickel for April delivery in Shanghai traded at about $34,500 a tonne. Excluding the 13% value-added tax that is charged on metal within China, that translates to about $30,500 on an LME-equivalent basis. And contracts for later delivery were trading still lower, with June futures below $30,000 on the same basis.
To be sure, the big short position that triggered chaos in the market last week still looms over it. Xiang Guangda, the Chinese tycoon who controls Tsingshan Holding Group Co., agreed with a standstill with his banks to avoid further margin calls.
But at some point, traders said, he will need to cover his position by buying back contracts on the LME, or by acquiring deliverable metal and shipping it to LME warehouses.
(By Mark Burton and Jack Farchy)
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