Chinese Nickel Tycoon’s ‘Big Short’ Boosts Tsingshan’s Miraculous Growth | Investment News

By Praveen Menon, Min Zhang and Fransiska Nangoy

(Reuters) – Chinese tycoon Xiang Guangda must find a way to extricate his Tsingshan Holding group from a slump after his bet on nickel prices backfired, fueling further volatility in a critical metal for the world. electric vehicle industry.

One of the world’s leading nickel producers is facing massive losses on its short positions after prices soared to over $100,000 a tonne last week and forced the London Metal Exchange to suspend trading in nickel. nickel.

Tsingshan must either repay outstanding short positions, which could reach $8 billion, or prove it has enough deliverable nickel to repay in kind.

Beijing could step in to save Tsingshan, a source familiar with the matter told Reuters. China could swap some of its high-grade nickel reserves for low-grade nickel pig iron (NPI) produced by Tsingshan to help it meet LME quality standards. China is estimated to hold around 100,000 tonnes of nickel in state stockpiles, two analysts said.

Tsingshan and China’s State Reserves Administration did not respond to requests for comment.

Tsingshan has already figured in market fluctuations.

Last year it triggered a price drop with surprise news that it would supply nickel matte to battery material makers, potentially solving a key bottleneck for electric vehicles by increasing the supply of nickel matte. quality battery in a cheaper way.

Betting prices would drop, Tsingshan started building a short position last year. The bet partly backfired when Russia’s invasion of Ukraine sent metal prices soaring, putting pressure on holders of large short positions, including Tsingshan.

“The markets felt that (Tsingshan) was going to move, but they probably did it too soon…a quarter too soon and no one was anticipating what happened in Ukraine,” said Angela Durrant, senior analyst at the nickel at Wood Mackenzie. .

Tsingshan suggested foreign elements could drive up nickel prices.

“Foreigners have actions and we are actively coordinating [with related parties]“, said Xiang, quoted by China Business News, on March 8.

Market fluctuations had no impact on Tsingshan’s Indonesian operations, a mining source familiar with the matter told Reuters.

For Indonesia, Tsingshan is a way to achieve its ambition to become a one-stop-shop for EV battery ingredients and the company has executed projects at lightning speed. Western companies often privately complained about the access and resources Tsingshan had in the country.

“The government has ambition in Indonesia, they want to build the battery hub for electric cars. That’s why you see the policy supporting the industry,” the source said. “We are affected by COVID, but not affected by this (short exposure).”

Tsingshan is also considered a poster child in Southeast Asia for China’s Belt and Road Initiative, President Xi Jinping’s massive infrastructure program.

Unlike the privately owned Tsingshan, several high-profile projects by state-backed Chinese firms have been shelved due to concerns over excessive pricing, corruption and debt sustainability.

Founded in 1988 in Wenzhou, Tsingshan entered into the production of stainless steel and the manufacture of automotive doors and windows.

But his fortunes changed when Xiang, 64, began exploring Indonesian markets in 2009. Over the next decade, he rocked the global nickel industry with low-cost nickel pig iron.

It has set up in Indonesia, the world’s leading nickel producer, with production ranging from nickel sulphate to nickel matte, an intermediate product that can be used in both stainless steel and batteries. Tsingshan is the spearhead of the two main poles of nickel in Indonesia, including the industrial park of Morowali, which employs more than 40,000 people and extends over 5,000 hectares with an airport, ore processing plants, a port and a hotel for executives.

Its Sulawesi facilities aim to produce 850,000 tonnes of nickel equivalent this year and 1.1 million tonnes in 2023.

“There was nothing on this site in 2015…so they did something absolutely miraculous,” Durrant said. “Moving away from higher Chinese power (costs), moving everything to Indonesia was a masterstroke for them.”

The industry attributes much of this success to Xiang.

He has become known as a market disruptor who could “take the world by storm”, said Steven Brown, an independent nickel consultant in Canberra who spent two days touring Tsingshan production facilities with Xiang in 2014.

Xiang opposes high nickel prices and is determined to be a low-cost producer of nickel and stainless steel, Brown said.

“I don’t think this crisis will lead to too much change of strategy from Tsingshan,” he added.

Market sources said that although Tsingshan has reduced his exposure, he is unlikely to have fully hedged all his positions.

China’s state-backed Securities Daily newspaper said on March 9 that Tsingshan had deployed “enough spot products” to deliver by swapping its nickel matte for nickel slabs in the domestic market.

The LME allows the delivery of nickel cathodes, including plate and briquettes.

“There are not many spot nickel products on the market, it is unlikely even that Tsingshan can get 100,000 tons,” said a Guangdong-based analyst who requested anonymity.

(Additional reporting by Ed Davies and Dominique Patton; Editing by Diane Craft)

Copyright 2022 Thomson Reuters.

Comments are closed.