JPMorgan Chase (NYSE: JPM) appears to be caught in the middle of a short squeeze as the largest counterpart to nickel trades by Chinese tycoon Xiang Guangda, Bloomberg reportsciting people familiar with the matter.
About 50K tons of Xiang’s total nickel short position of more than 150K tons is held through an over-the-counter position with JPMorgan (JPM), Bloomberg said. Based on that position, Xiang’s company Tsingshan Holding Group would have owed the New York-based bank ~ $ 1B on margin on Monday. Earlier this week, the news organization reported that Tsingshan has been struggling to pay margin calls to its brokers and banks.
JPMorgan (JPM) is now leading negotiations between Xiang and roughly 10 banks and brokers through which his nickel short position is held, the people told Bloomberg. With the rise in nickel prices, the banks and brokers involved in the transactions now have to make large margin calls of their own at the LME to cover the short positions.
The other banks and brokers involved include: Standard Chartered Bank Plc (OTCPK: SCBFF)BNP Paribas SA (OTCQX: BNPQF)CCB International Holdings, ICBC Standard Bank Plc, United Overseas Bank Ltd. (OTCPK: UOVEF)BOC International Holdings Ltd., DBS Group Holdings Ltd. (OTCPK: DBSDF)and brokerage Sucden Financial.
The crisis could end without losses for the banks and for Xiang. Tsingshan Holding, asone of the world’s largest nickel producers, could benefit from the increase in price if it can get through this patch. Also, if Xiang holds on to his short position and nickel prices decline after the LME reopens, the amount he owes the banks and brokers could fall drastically.
On Thursday, London Metal Exchange rushes to contain fallout of nickel trading crisis