Image source @ Visual China
Text | Radar Finance, author | Kaijing Zhang, Editor | Deep
The chain reaction triggered by the geopolitical situation in Russia and Ukraine is constantly fermenting.
Since March 7, global stock markets have continued to decline, but commodity markets have soared. Among them, international oil prices and European natural gas futures prices have hit a record high, and LME (London Metal Exchange) nickel (hereinafter referred to as "Lun nickel") has risen sharply in two consecutive trading days, and the price has soared from about 25,000 US dollars / ton in early March to a maximum of more than 100,000 US dollars / ton, which once triggered the suspension of trading on the exchange.
Radar Finance noted that unlike the logic of the price increase of oil, natural gas and other resources, an epic short-selling is being staged behind the sharp rise in Lun nickel. Tsingshan Group, known as the "King of Chinese Nickel", and Glencore, a European and American commodity futures giant, are the protagonists of this event.
According to media reports, based on Tsingshan Group's 200,000-ton short position, the amount of funds it lost through this campaign is around 10 billion US dollars, which is about 20% of the company's revenue in 2021.
In this regard, media reports said that Tsingshan Group's domineering response: it has been allocated to sufficient spot for delivery.
The international financial game behind the soaring nickel price
Tsingshan Group is a Fortune 500 private enterprise headquartered in Wenzhou, Zhejiang Province, and is currently the largest stainless steel producer in China. According to the data, the total crude steel output of stainless steel in mainland China will account for about 60% of the world in 2020, of which the output of stainless steel crude steel of Qingshan Group will account for 35.8% of the supply in the Chinese market.
Nickel is an important raw material for the production of stainless steel, nickel-added stainless steel can significantly strengthen the stainless steel and corrosion resistance, is widely used in industrial machinery manufacturing, household goods and aerospace, tank ships, atomic energy reactors and other fields.
Combined with the data disclosed by the U.S. Geological Survey and Tsingshan Group itself, it can be seen that the global mine nickel production will reach 2.7 million tons in 2021, of which the output of Tsingshan Group will reach 600,000 tons, accounting for about 22% of the world.
Thanks to this, Tsingshan Group has full influence in the global nickel industry chain, which also gives it a natural incentive to short nickel prices through hedging.
Radar Finance has learned that hedging is characterized by the simultaneous trading of the same type of commodities in the spot and futures markets in equal quantities and opposite directions, in order to establish a hedging mechanism to minimize price risks.
Specifically, Tsingshan Group should have taken out part of its funds to buy short orders in the futures market in order to prevent the operating fluctuations caused by the long-term decline in nickel prices on the enterprise. In this way, if the nickel price really falls, then Tsingshan Group can use the money earned by short orders to make up for the loss of spot prices; if nickel prices rise, Tsingshan Group can use the money earned on spot to make up for the loss in the futures market.
Historically, Tsingshan Group has certain experience in hedging. As an important material for the production of ternary lithium batteries for electric vehicles, nickel ore once had a shortage in early 2021, but at this time Aoyama completed the technology of nickel-iron smelting high-ice nickel. So the company shorted Lun nickel in the night market, and at the same time began to supply to friends, releasing a signal of sufficient nickel supply, a series of combination punches made the nickel price drop by 16% in two days, but the company made a big profit.
Times have changed, and things have changed this year.
On the one hand, the nickel delivery products of Lun Nickel require a nickel content of not less than 99.8%, and Tsingshan Group's own products, whether it is nickel iron (nickel content of about 10%) or high ice nickel (nickel content of about 70%), can not be used as delivery targets. Tsingshan Group could have purchased Russian nickel to contingency, but in the context of the Russian-Ukrainian conflict, Russian nickel was not recognized by the exchange.
On the other hand, according to the news in the market, Tsingshan Group currently holds 200,000 tons of empty orders, which has reached one-third of the company's annual output in 2021. The delivery date for Lun Nickel was originally scheduled for March 9, and it was not easy to scrape together a large amount of pure nickel in such a short period of time.
Under the combination of the two, if Tsingshan Group does not have enough spot for delivery, it can only choose to make up the deposit. Perhaps, this is also the reason why international financial capital is eyeing Tsingshan Group.
On March 7, Beijing time, the main contract of Lun nickel futures soared by 72.67% in a single day; on March 8, the price of Lun nickel continued to rise, breaking through 100,000 US dollars / ton during the session, after the LME suspended all ways of nickel contract trading, to the end of the Stock Exchange volume of Lun nickel as high as 8800 lots, the price still reached 80,000 US dollars / ton after the price fell.
Radar Finance noted that a report compiled by the Institute of Economics and Finance of Industrial Securities shows that Russia's nickel resource reserves rank third in the world in 2021, superimposed on the Russian-Ukrainian crisis and the high prosperity of new energy vehicles, and some people believe that this is one of the important drivers of the huge increase in Nickel that deviates from the fundamentals.
However, in the eyes of industry insiders, the possibility of this being a premeditated arrangement cannot be ruled out. Hu Chao, investment director of Shenzhen Bailun Fund, said that in terms of the ability to prepare funds for trading in the London market, the counterparty clearly has the confidence to have more advantages than Tsingshan Group.
There are reports that Glencore switzerland may use the Lun nickel transaction to force Tsingshan Group to claim 60% of its equity in the Indonesian nickel mine, and the floating loss of Tsingshan Group will exceed 8 billion US dollars. Thomas Thompson, executive vice chairman of British mining company Tungsten West Ltd, speculated that Tsingshan's book loss was $12 billion.
Affected by this, the stock price of Huayou Cobalt, an important partner of Tsingshan Group and the leader of domestic cobalt mining, fell for two consecutive days, and the stock price of the non-ferrous sector where it was located also fell sharply. It is understood that about 80% of Huayou Cobalt's long-term receivables may be related to Tsingshan Group.
It is worth mentioning that Huayou Cobalt said in response to the media that the rise in nickel prices this time is an obvious short-selling behavior. But Glencore said in response to market rumors that this was complete nonsense.
Tsingshan Group miscalculated?
At this point, some netizens are curious, why did Tsingshan Group, which has experience in hedging, not withdraw in time before the price of Lun nickel rose?
According to publicly disclosed information, Tsingshan Group's nickel-iron smelting cost in Indonesia is low, and the cost price per ton of pure nickel after conversion is about 8,000 US dollars. The price of nickel has been stable around $18,000 since 2021, and has been rising above $20,000 since 2022.
According to the deputy general manager of a large futures company in South China, when Lun Nickel reached about $18,000, Qingshan began hedging in the London disk.
It may be that the high profits on the disk have made Aoyama lower his vigilance against the risk of short orders. After all, if calculated at a price of $18,000, Aoyama's profit per ton can reach $10,000, and the last time nickel prices reached such a high level, it was around 2014.
"I have a customer and Tsingshan Group in Indonesia joint venture nickel ore, nickel iron smelting, he mentioned this to me in the second half of last year, when he said that Qingshan was confident, their high ice nickel production speed is faster than expected, production profits are too lucrative, do a little hedging originally felt that there is no pressure on Qingshan." The deputy general manager said.
But Glencore, the world's largest commodities trader, has struck. Founded in 1974, the Fortune Global 500 not only rewrote the competitive landscape of the two major industries of global mining production and commodity trading through a $61.9 billion merger and acquisition, but also achieved a great leap forward in the valuation of companies from $600 million to $88 billion in 19 years.
A futures veteran, who did not want to be named, speculated that Glencore may be betting on Tsingshan Group's problems with the mine's mining plans. In recent years, the demand for nickel in new energy has been too large, and Qingshan has opened up the production line from nickel to stainless steel, which is very profitable, so it is very likely to overdraft production capacity.
After the incident, LME suspended the trading process on March 8, which was interpreted by the industry as buying time for Tsingshan Group to prepare spot. According to the data, in 2012, the Hong Kong Stock Exchange spent 1.388 billion pounds to complete the acquisition of LME, the world's largest metal exchange.
LME said it would cancel all trades executed on the inter-office market and LME select on or after 0:00 UK time on 8 March 2022 until further notice; and delayed the delivery of spot nickel contracts that will be completed on 9 March.
The latest announcement shows that LME believes that the credit environment in the overall commodity market is currently in a tight state after geopolitical events and price surges, so the exchange does not expect to resume nickel contract trading before March 11. At the same time, the market will be informed at the latest before 2:00 p.m. (London time) the day before trading resumes.
In addition, LME has also made changes to the trading rules: on the first day of the restart, LME's nickel contract trading will start at 9 a.m. London time (instead of 1 a.m. under normal trading), and it is expected to restart trading according to the closing price on March 7, and set a 10% one-day limit on the rise and fall of nickel futures.
Radar Finance noted that the closing price of Lun nickel on March 7 was about 50,000 US dollars / ton, which was 37.5% lower than the 80,000 US dollars when trading was suspended.
"The current events are unprecedented," the LME wrote. As a result, it is considering reversing large long and short positions before resuming trading. This means that, on a voluntary basis, the exchange will first confirm which traders with large (tentatively more than 100 lots) long and short positions are willing to exit their positions, as well as the price at which they are willing to close them, and then write off some of the agreed positions.
In addition to the change of the LME side, Xiang Guangda also said in an interview with the media: "Today I received a lot of calls, and the relevant departments and leaders of the state are very supportive of Tsingshan Group. ”
On March 9, some media reported that Tsingshan Group responded to the outside world, "Foreign investment does have some actions, is actively coordinating, and there is no problem with the current position and operation." ”
The low-key Nickel King
What kind of private enterprise is it, with such a large "noodle"?
Similar to many entrepreneurs who went to sea in the 1980s, Xiang Guangda, the founder of Tsingshan Group, also had the experience of abandoning the iron rice bowl to go to the sea to start a business.
Around 1995, when the national steel was in short supply and the seamless steel pipe industry in Wenzhou was rising, Xiang Guangda took advantage of the opportunity to establish the first private enterprise in the mainland to produce steel - Zhejiang Fengye Group, and based on this, began to march into the steel industry.
It is worth mentioning that the name of "Qingshan" comes from Zhejiang Qingshan Special Steel Co., Ltd., which was founded in May 1998, and the reason why it is called "Qingshan" is that on the one hand, the company's factory site is located in Yongzhong Qingshan Village, Longwan District, Wenzhou City, on the other hand, it also takes the meaning of "holding on to Qingshan and not relaxing", symbolizing tenacity and eternity.
However, until 2008, the domestic steel industry was still chaotic. In the words of Xiang Guangda: "The general carbon steel industry and the stainless steel industry are subject to the constraints of resources. 60%-70% of our stainless steel is nickel, so who produces nickel? It is produced by foreigners. ”
According to Xiang Guangda's recollection, at that time, most of China's steel companies were basically working for foreigners, because the profits of the steel industry were earned by the mines, and the nickel industry was the same. Therefore, the control of upstream raw materials has become the only way for the further development of the industry.
Around 2007, it was the maturity of THEKEF (Rotary Kiln Ore Furnace) technology. Benefiting from the application of this technology, the economic benefits of laterite nickel ore began to appear, and it gradually replaced the previously popular nickel sulfide ore and became the new favorite of the stainless steel industry.
Since then, Indonesia, the Philippines and other countries have become a must for stainless steel companies, in comparison, the previous nickel sulfide is mainly distributed in Canada, Russia, Australia and other countries.
Tsingshan Group is the first Chinese enterprise to choose to go to the sea to build a smelter in Indonesia, and some industry insiders have calculated that if the cost savings of freight, electricity consumption and smelting costs are added together, the cost of smelting ferronickel in Indonesia will be 20%-30% lower than that in China. This is also an important reason why Qingshan can become the first private enterprise in Wenzhou with a turnover of more than 100 billion yuan after seven years of going to sea, and ranked 361st in the world's top 500 in 2018.
In fact, Tsingshan Group can become the "son of natural choice", which is also related to its technical reserves and the opportunities of the times.
Aoyama is the earliest smelting enterprise in China to build a RKEF nickel iron production line, and is leading in the country in RKEF technology. At the beginning of the construction of the park project, it has received medium- and long-term financial support from domestic policy banks such as the China Development Bank, the Export-Import Bank, the Bank of China and state-owned Chinese banks.
In addition, Indonesia has been brewing an export ban on nickel ore since 2009, which came into effect in January 2014. This has given Aoyama a lot of first-mover advantages, and after 2014, companies that passively came to Indonesia want to obtain ready-made facilities, the best way is to cooperate with Aoyama.
On this basis, The Qingshan Park in Indonesia has gradually become an important nickel mining and smelting and stainless steel industry base in the world, and is also an early important achievement of the "Belt and Road" initiative. Aoyama's performance has also risen all the way.
However, in the view of people in the futures industry, no matter how important a position Qingshan Group occupies in the industrial chain, risk control in the futures market is always its ability to cultivate. Previously, there have been lessons learned from the past such as the China Grain Storage Cotton Futures Incident, the Zhuye Group Zinc Futures Incident, and the Sinopec Crude Oil Futures Incident, and enterprises should be more vigilant and face up to the risks brought by the black swan event to futures trading.