In early March, nickel futures on the Chinese-owned London Metal Exchange (LME) surged by nearly 250 percent. The LME then made the unusual decision to suspend nickel trading for over a week, which canceled thousands of trades worth billions of dollars.
That debacle resulted in a probe and several lawsuits.
Recently, a Chinese banker explained why China was eager to acquire the LME in 2012.
“China wants pricing power, and the best way to do that is to buy a commodity exchange,” Charles Li Xiaojia, the Chief Executive of the Hong Kong Exchanges and Clearing (HKEX) between 2010 and 2021, explained in an interview with China Fund News on July 4.
China thinks that exchanges are a rare infrastructure facility, according to Li. When the HKEX acquired the London Metal Exchange, the world’s largest metals trading market, Li called it “a once in 100 years opportunity.”
Li said that China has been looking for opportunities to acquire exchanges in order to have commodity pricing power. So when it found that the Intercontinental Exchange (ICE) was planning to acquire LME, the HKEX rushed to step into the deal.
Nickel Trading Suspended to Save Chinese Company
A few months before Li boasted about this acquisition, the HKEX-owned LME suspended nickel trading and canceled trading contracts when prices of nickel rose to a record peak on March 8. This controversial action saved Tsingshan Holding Group Company Limited, a multibillion-dollar mining and steel-making company. Its founder, Xiang Guangda, nicknamed The Big Short in China’s commodities circle, made a huge bet on shorting nickel yet managed to walk away with his business intact and even growing.On March 10, Brokerage China quoted sources that LME’s suspension of trading was effectively the result of the Chinese Communist Party’s (CCP) initiative and was the most ‘proactive’ measure the CCP pushed LME to do.
Between March 7 and 8, the price of nickel futures on the LME surged by nearly 250 percent, surpassing $100,000 per tonne. Russia’s invasion of Ukraine caused the price of nickel to skyrocket and Tsingshan’s bet on falling nickel prices went spectacularly wrong, leading to a potential loss of $8 billion.
The LME then suspended nickel trading activities for over a week, until March 16, citing price volatility and set the daily price limit for nickel at 5 percent. It also cancelled all trades executed on and after 00:00 GMT on March 8 and deferred delivery of all nickel contracts entered before March 16 to March 23.
On March 15, Tsingshan issued a statement saying that it had reached a silent agreement with JP Morgan Chase & Co. and Standard Chartered, meaning no additional margin was required, and Tsingshan would not be forced to liquidate.
Tsingshan was ranked in 14th place among China’s top 500 private companies in 2021. The Wall Street Journal cites sources familiar with the matter, saying CCP regulators intervened in the matter after the nickel short squeeze, asking domestic banks to support the company because Tsingshan has strategic significance to China’s metal industry.
The LME’s emergency halting of nickel trading cancelled thousands of trades worth nearly $4 billion. This led to complaints from many investors and traders.
On April 4, the Financial Conduct Authority (FCA) and the Bank of England’s Prudential Regulation Authority (PRA) issued a joint statement saying that they launched a probe into the LME nickel market after the March 8 suspension of nickel trading.
On June 1, the hedge fund Elliott Management Corp. filed a lawsuit against the LME and LME Clear, the exchange’s clearing house, in England’s High Court. The suit alleges that LME’s cancellation of nickel trades was “unlawful on public grounds and/or constituted a violation of the claimants’ rights.” On June 6, market maker Jane Street Global Trading LLC also sued the LME for $15.34 million.
Matthew Chamberlain, chief executive officer of the LME, admitted that the LME’s response to the nickel trading fiasco has damaged the LME’s reputation.
After Charles Li Xiaojia revealed in his interview that the reason the CCP acquired the LME is to control commodity pricing power, U.S-based, private investment adviser, Mike Sun told The Epoch Times that he hopes the UK can acquire the London Metals Exchange back to maintain market order and fairness.
