Since Russia’s invasion of Ukraine, the price of nickel, a metal heavily in demand for the manufacture of electronic vehicles and other uses, had risen partly as a result of the heavy concentration of deposits of the precious metal in Russia, which massive sanctions have now cut off from much of the world.
The spike in the commodity price frustrated a huge short position held by Xiang Guangda, founder of Tsingshan Holding Group, one of the world’s biggest nickel and stainless steel producers. Guangda bet that nickel prices would go down, not up.
When nickel’s trading price surged dramatically in early March, Tsingshan struggled to pay margin calls, putting its creditors in a difficult position. The price rise was further fueled as brokers and bankers of Tsingshan rushed to buy back nickel contracts to stem losses. At its peak, prices shot up to a record $100,000 a ton.
LME’s move to halt trading raises “very serious concerns,” according to Balding, who said the exchange was shut down “basically to protect a specific Chinese company from incurring the losses … when the price of metals skyrocketed.”
“I suspect the reason it isn’t being talked about is because of the events in Ukraine,” he told The Epoch Times.
“This will absolutely prove a watershed moment, especially when governments are considering whether or not they should be allowing Chinese firms as key stakeholders in markets, whether they’re commodity or stock markets.”
Balding added that the events of March 8 were not only “a serious blow” to the London Metal Exchange but are likely to make themselves felt in the markets of Chicago and New York, where many participants place their faith in “high-quality trading venues” backed up by a sound legal system.
“When they are currently leaning on the scales of a market to benefit certain Chinese parties, that tends to be frowned upon by market participants,” he added. “That’s going to have a significant impact on how countries view Chinese involvement in their markets in the future.”
These developments come at a time when the Chinese economy already faced “a significantly more difficult year,” Balding said. He alluded to the CCP Congress coming up in the fall, at which leader Xi Jinping could be appointed to a third term as party secretary if not toppled in intraparty factional battles.