In March 2022, Tsingshan Group was targeted by Canon Group in the international financial market, and once suffered a short position loss of 112 billion. As two Fortune 500 companies, the two sides launched an extreme game at the London Metal Exchange.
Isn’t BTC also playing a wonderful hunting game at this moment?
On March 7, 2022, Canon, as a bull, raised the price of nickel futures on the London Metal Exchange by 248% in two days. The original price of more than 2 trillion tons of nickel rose directly to $100,000 per ton. According to the record of Tsingshan Group's 200,000 tons of nickel short positions, the floating loss in just two days was $16 billion, more than 112 billion yuan. When the news came back to China, there was an uproar across the country. Before this, few people knew about Tsingshan.
Can BTC bears survive this crisis? The winner will be decided this week.
Tsingshan Group was founded in Zhejiang in the 1980s. It started from stainless steel doors and windows and developed into a multinational company with 23% of the world's nickel reserves. It is also the controller of the domestic stainless steel and nickel market and is known as the world's nickel king. It has more than 100,000 employees and an annual revenue of more than 300 billion, ranking second among Zhejiang companies. Alibaba Group ranks ahead of Tsingshan. Another subsidiary of Tsingshan Group, Fujian Qingtuo Group, has an annual revenue of more than 150 billion, ranking first among Fujian private enterprises, surpassing the second-ranked CATL. The founder of Tsingshan Group, Xiang Guangda, has also become the richest man in Wenzhou with a net worth of 42.5 billion.
The Hunt for BTC Bulls is About to Begin
At the end of 2021, with the commissioning of Tsingshan's new mine in Indonesia and the breakthrough of new nickel technology, Tsingshan Group believes that nickel prices are already high and will definitely fall in the future. Therefore, Tsingshan began to sell short nickel futures on the London Metal Exchange to lock in the selling price of nickel produced by itself in the future. Because Tsingshan's nickel smelting cost in Indonesia is around US$8,000 per ton, when the price of nickel in London reached US$18,000, Tsingshan began to sell hedging in London. At that time, the price on the disk was a profit of US$10,000 per ton for Tsingshan. Normally, as a globally important nickel producer, it is a normal operation to hedge spot risks in the futures market, but the problem is that the 200,000 tons of nickel futures sold by Tsingshan are too huge, and Tsingshan Group itself does not have so much spot. Tsingshan's main product is high-grade nickel matte with a purity of 60%, while the London Metal Exchange trades 99% pure nickel, which means that the nickel produced by Tsingshan cannot be used for delivery at all. The most serious thing is that Tsingshan is shorting nickel futures contracts that are about to expire. In other words, Tsingshan Group never thought about physical delivery from the beginning, but hoped to use a large number of short orders to lower the near-month nickel price, or to stop losses and close out the opponent's positions. This is not the first time that Tsingshan Group has done this. As early as 2021, Tsingshan Group used this method to cause the nickel futures price to plummet by 16% in two days, making hundreds of millions of dollars. At that time, Tsingshan could never have imagined that the operation he thought was very powerful would be paid back hundreds of times the price one day.
As early as the beginning of February, Bloomberg reported that all institutions on the London Metal Exchange began to buy a large number of nickel futures and hoard nickel spot. Their spot positions accounted for 80% of the nickel inventory of the exchange, indicating that the holders were very optimistic about the rise in nickel prices and had strong financial strength. These data were all public. As a leading company in the industry, Tsingshan Group could not have been unaware of the situation at the time, but it did not choose to reduce its positions and close its positions. Instead, it adopted a strategy of continuing to gamble. In the international financial market surrounded by wolves, any loophole may become a place for foreign capital to attack, and it will be fatal if you are not careful. The position loopholes of Tsingshan Group were soon targeted by international institutions. At this time, Tsingshan did not realize that a hunting operation against itself was coming, and the bulls who hoarded nickel spot in advance officially began to force the position. The one who could confront the giant must be another giant.
The international organization that forced the Qingshan Group to liquidate was the famous Swiss Canon Group. Canon is the king of global commodities, with revenue of more than 1.7 trillion yuan in 2018, ranking 23rd in the Fortune Global 500. This is not the first time that Canon has forced a Chinese company to liquidate. As early as 1997, the London Metal Exchange also had a liquidation incident. The target of the liquidation was China's Zhuye Group. At that time, Zhuye Group sold 450,000 tons of zinc in excess of its annual production of only 300,000 tons of zinc for arbitrage, making it the largest short seller at the time. Canon seized the loophole of Zhuye Group and raised the zinc futures price by 51% in a short period of time. After the liquidation incident of Zhuye, the whole country prepared zinc spot for Zhuye Group. But in the end, it still failed to raise enough physical delivery to Canon Group, causing Zhuye Group to suffer a huge loss of 1.5 billion yuan in 1997.
Canon was waiting for an opportunity to launch a hunting operation against Tsingshan Group in the financial market, hoping to achieve the same effect as it did in hunting down Zhuye Group and China Aviation Oil. After these two companies were sniped by foreign capital, the former was silent in the market and the latter went bankrupt directly. Soon the opportunity appeared.
At the end of February 2022, due to the conflict between Russia and Ukraine, Russian nickel was disqualified from delivery by the London Metal Exchange. Russian nickel supply accounts for 40% of the world's circulating nickel and is an important source of delivery products for the London Metal Exchange. The ban on Russian nickel delivery also made the spot nickel available for delivery in the market immediately tight, which means that there will be a serious shortage of nickel in the market. At this time, the price of nickel futures also began to rise gradually. At the opening of the market on the morning of March 7, Canon began to force a position at the London Metal Exchange. Tens of thousands of buy orders appeared on the originally calm market in an instant, raising the price of nickel to US$50,000 in just 10 minutes. As of the close of the day, Canon spent about US$700 million. Pulling up nickel futures by 80%, for a while, the market didn't know what happened. At this time, Tsingshan Group was also looking for news everywhere. Until the evening, there was a rumor that Canon Group was forcing shorts.
As we all know, Tsingshan Group is the biggest short position in nickel, and this forced liquidation is obviously aimed at Tsingshan Group. On March 8, Canon once again used huge funds to push up the price of LME nickel futures. LME nickel futures once again surged rapidly on the same day, with the price directly breaking through $100,000. The nickel futures price rose 248% in two trading days. On March 4, four days ago, the price of LME nickel was still around $26,000. While the bulls pushed up the nickel price in the futures market, they continued to control the nickel spot market. On that day, the public nickel inventory in the warehouse of the London Metal Exchange was only 74,800 tons, while the nickel futures contract position was 1.2 million tons, which meant that the market was seriously short of nickel spot deliverable, and the situation was very favorable for the bulls. The sky-high nickel futures represented that the bulls' goal had been achieved, but it was a huge disaster for the bears. The reason why Canon chose to force liquidation on March 8 was that the short nickel futures held by Tsingshan were to be delivered on March 9. The bulls wanted to send Tsingshan to hell without giving Tsingshan Group any breathing time.
The surge in futures prices has forced Tsingshan to urgently add margin for its short positions in London. The margin ratio for nickel futures contracts on the London Metal Exchange is 12.5%, which means that Tsingshan Group has already paid a margin of $2 billion. Based on Tsingshan's 200,000 tons of short positions, if the London nickel futures are delivered at $80,000 in cash, Tsingshan Group will lose $16 billion, equivalent to about 112 billion yuan. If this loss becomes true, it means that Tsingshan Group has returned to the pre-liberation period and worked for Canon for ten years in vain. For hedging and greed, Tsingshan Group bet all its chips, but it was dragged into the water. Once the loss of $16 billion becomes true, Tsingshan Group is likely to fall into bankruptcy crisis due to liquidity risk. For Tsingshan Group at this time. Moreover, if it can raise enough nickel spot that meets the exchange's delivery requirements for Canon, then not only will it not lose money, but it can also make a lot of money. Because at this time, the spot market price of nickel is only more than 20,000 per ton. Originally, Tsingshan could have completed the delivery by purchasing Russian nickel, but as Russia was sanctioned, Russian nickel was also banned from being used for chromium delivery, and most of the nickel spot circulating in the market was controlled by bulls. On the other hand, the London Metal Exchange requires that the nickel content of nickel delivery products be no less than 99%, while Tsingshan Group produces high-grade nickel matte with a purity of 60%, which cannot be used directly for delivery. Even if high-grade nickel matte can be converted into electrolytic nickel through processing, Tsingshan Group's high-grade nickel matte production cannot meet the delivery of 200,000 tons of electrolytic nickel. At this time, Tsingshan Group either goes to the market to buy electrolytic nickel spot for delivery to buyers, or directly buys the corresponding futures contracts to close positions. No matter which method is used, it will bring huge losses to Tsingshan Group when the price of nickel has skyrocketed.
The delivery of the London nickel contract is imminent. It is impossible for Tsingshan to raise 200,000 tons of nickel and transport it to London in one day. The reason why Canon rushed to launch a forced liquidation with huge funds is that it has already understood the nickel spot market and Tsingshan's situation, and has already bought out most of the nickel spot in the market. Tsingshan Group's own nickel does not meet the delivery standard amount, and nickel cannot be used for delivery. Canon's forced liquidation also affected another partner of Tsingshan Group, Huayou Cobalt, which involved 24,000 tons of nickel futures short orders. Huayou Cobalt fell to the limit from a 30% increase within 30 minutes after the opening on March 7, and continued to fall to the limit the next day. Among the 200,000 tons of nickel futures held by Tsingshan, 100,000 tons are bets signed with JPMorgan Chase off-site, which also means that Tsingshan Group owes JPMorgan Chase about US$1 billion in margin. Fortunately, JPMorgan Chase is not Goldman Sachs, and Morgan can sit down and help solve the problem together. If it encounters Goldman Sachs, the final result is estimated to be unimaginable. Air China, China Eastern Airlines, and China Aviation Oil were very miserable examples. On March 8, led by JPMorgan Chase, Xiang Guangda, the actual controller of Tsingshan Holdings, negotiated with a number of companies to suspend the margin call on Tsingshan and temporarily refrain from forced liquidation of Tsingshan's short positions. Subsequently, Tsingshan Group took the initiative to find the forced liquidation bulls led by Canon, and the short side admitted defeat and compensated part of the cost of liquidation. The price was negotiated according to US$50,000, which was much better for Tsingshan than the closing price of US$80,000.
Canon also showed its fangs at this time, saying that it did not want compensation and cash from Tsingshan Group, and proposed to take 60% of the shares of Tsingshan Group in Indonesia's largest nickel mine. Indonesia's nickel production accounts for 52% of the world's nickel production. If it gets control of Tsingshan Group's largest nickel mine in Indonesia, it will undoubtedly firmly grasp the pricing power of upstream nickel. Nickel is the most important raw material in new energy vehicle batteries. Even Musk has said that nickel is an important element that holds back the production of new energy vehicles. Whoever controls enough nickel controls the lifeline of new energy vehicles around the world. As a scarce and tight natural resource, this cannot be measured in money.
On the surface, this forced liquidation is a financial plunder of Canon against Tsingshan Group, but behind it is another conspiracy by relevant places to try to pry open the foundation of China's new energy strategy. With the explosion of new energy vehicles in 2020, nickel has also become an important material for automotive batteries. It can be said that whoever controls nickel controls the pricing power of new energy batteries. And new energy batteries are the core part of new energy vehicles. In the field of traditional automobiles, European and American countries have always been ahead of China. With the rise of new energy vehicles, my country has begun to implement the action of overtaking on the curve, vigorously promoting the development of new energy vehicles, and related industries have begun to lead the world. As European and American countries began to pay attention to the development of new energy vehicles and wanted to develop local new energy power battery industry chains, they discovered that China had already completed the layout of key metal mineral resources such as nickel. Even Musk posted in the early morning that nickel is the biggest challenge to the endurance of lithium batteries, and it has also become a heavyweight metal that can hold Tesla's neck. This shows the important position of nickel.
After hearing that Canon was going to take away its assets, Tsingshan Group decisively refused. Subsequently, the negotiation ended in an unhappy atmosphere. After the negotiation with Canon broke down, Xiang Guangda, the actual controller of Tsingshan Group, took the fastest flight to Beijing to seek support and help. Afterwards, Xiang Guangda, who had never appeared in public, rarely accepted media interviews, saying that the foreigners did have some actions and were actively coordinating, and Tsingshan was an excellent Chinese company. There were no problems with positions and operations, and the relevant state departments and leaders were very supportive of Tsingshan. Although there were only a few short sentences, it explained several situations. First, there was indeed foreign capital forcing itself to close its positions and offering conditions. Second, it had received support from senior management and had the confidence to deal with this crisis. Tsingshan Group has hundreds of thousands of employees and is an important force in the development of the domestic new energy industry. As a super-large enterprise of such a scale, the country will naturally not let it fall easily.
At this time, the Hong Kong Stock Exchange, the controlling shareholder behind the London Stock Exchange, also received a call from Beijing. After understanding the whole story, whether it was the mediation of the Hong Kong Stock Exchange or some other reason, the London Metal Exchange issued an announcement that day that it would urgently suspend the trading of nickel futures, and issued 6 announcements in succession, announcing all major contracts including nickel, adding a series of measures to stabilize the market, such as deferred delivery mechanism, position transfer mechanism, and price limit restrictions, and indefinitely postponed the delivery of nickel futures contracts originally scheduled for March 9, 2022. The most important announcement was the cancellation of the transaction on March 8, and the surge in nickel futures on that day was invalid. This behavior was also described by the market as a bully. The London Stock Exchange modified the rules, delayed delivery, and canceled the transaction on the day with the largest increase, which is very beneficial to Tsingshan. Tsingshan can use the buffer time to convert its own nickel iron and high matte nickel into pure nickel, or replace the nickel that meets the exchange delivery in the market. As long as Tsingshan is given enough time, Tsingshan can raise enough spot. The London Metal Exchange has sacrificed its market credibility to maintain the stability of the nickel market, which is extremely rare in the 140-year history of the exchange. The exchange's series of actions were also interpreted by the market as gaining more buffer events for Tsingshan Group. Although the London Metal Exchange is located in Europe, it is a real Chinese company. The London Metal Exchange was established in 1876 and is the world's largest non-ferrous metal exchange. It plays an important role in the global financial market. The Hong Kong Stock Exchange acquired the London Metal Exchange for US$2 billion in 2012. The London Metal Exchange has since become a wholly-owned subsidiary of the Hong Kong Stock Exchange, so the Chinese have full say in this century-old exchange. Some analysts also believe that the reason why the London Metal Exchange did this is to save itself, because the surge in nickel prices has caused many market makers in the exchange to suffer heavy losses. Economic traders must pay huge margins to continue trading, so some market makers with insufficient funds will default on other metal varieties at the same time. If the market is not intervened, the London Metal Exchange will be completely out of control, because there is no liquidity in the morning and the positions cannot be closed.If all brokerage companies go bankrupt, the profits of bulls will only be paper wealth. Once the London Metal Exchange collapses, the entire world metal industry chain will also collapse. The London Metal Exchange cannot afford such consequences, so it has to intervene urgently. When the Hong Kong Stock Exchange spent $2 billion to buy the London Metal Exchange, the clearing of transactions was not carried out at the London Metal Exchange. Subsequently, the Hong Kong Stock Exchange spent another $300 million to establish a clearing house, allowing all members to assign clearing business to the exchange. This strong series of reforms and combined rights ensures the exchange's ability to resist risks and ensures the Hong Kong Stock Exchange's absolute control over the London Metal Exchange.
China has a large amount of natural resources, and its import and export trade has been seeking to master the pricing power of global commodities. From the current perspective, the London Metal Exchange, which the Hong Kong Stock Exchange spent more than US$2 billion to buy, is very valuable and necessary. Tsingshan Group urgently found Minmetals Group, which could get nickel from Russia, and visited the chairman of Minmetals Group with the chairman of CCB, hoping that Minmetals would coordinate the supply and help Tsingshan Group deliver the goods. However, Minmetals' nickel inventory was also limited, and it could not produce so much nickel spot in the short term. Finally, under the coordination of domestic senior officials, Minmetals Group took the lead in the operation, and Guozhu and other domestic companies with nickel spot jointly gathered the needs for Tsingshan. And CCB provided a guarantee. On the evening of March 9, Tsingshan Holdings announced that it had replaced domestic nickel plates with its high-grade matte nickel, allocated sufficient spot through various channels, and formally notified several major bulls to require normal delivery. Tsingshan Group, which was originally at an absolute disadvantage, achieved a Jedi counterattack in just two days. Tsingshan's delivery statement suddenly put Canon's pressure on him, because even if the delivery was made at the price of more than 50,000 US dollars per ton on March 7, the value of 200,000 tons of nickel in Tsingshan's hands exceeded 10 billion US dollars. Even if only 100,000 tons were delivered, it was unacceptable to Canon. Canon has paid a huge cost in the past few days to go long on nickel prices. First of all, from January to March, Canon, as a long position, spent more than 3 billion US dollars to sweep the spot market, eating up nearly 80% of the nickel crab goods on the market. Secondly, starting from March 7, the nickel price on the London Metal Exchange was wildly raised, and the margin of the London Metal Exchange was 12.5%. Tsingshan Group's 200,000 tons of short orders meant that Canon held 200,000 tons of long orders. Calculated at the nickel price of 50,000 US dollars per ton on March 7, Canon has invested more than 1.3 billion US dollars in margin. If calculated based on the nickel price of $50,000 per ton on the London Metal Exchange on March 7, and assuming that the metal cost of Tsingshan in Indonesia is $10,000 per ton, if Tsingshan can deliver all 200,000 tons of nickel metal spot to Canalys as scheduled, it can earn a gross profit of $40,000 per ton, and 200,000 tons of nickel means a profit of $8 billion. For an international energy and capital giant like Canalys with assets of hundreds of billions, the available liquidity is only around tens of billions.If the 200,000 tons of nickel from Tsingshan Group were delivered normally, Canon would have been stuck with the goods after paying tens of billions of dollars. The market generally believes that the long and short forces in the London nickel futures market have reversed, and this unprecedented long-squeeze battle ended with an unexpected reversal. At this time, Canon has only two choices: either accept the spot of 200,000 tons of nickel plates at a high price and enjoy the joy of driving the nickel futures price to a sky-high price of 100,000 yuan, or sit down with Tsingshan Group and have a good talk. In the week after the squeeze, all parties played games openly and covertly.
According to the information finally revealed by relevant persons, under the background that Canon, Tsingshan Group and the London Metal Exchange each had faults and bargaining chips, the parties reached an agreement to roll back the transaction, through physical delivery of tens of thousands of tons of nickel, and another hundreds of thousands of tons delivered in cash at a low price. On June 29, 2022, Tsingshan Group withdrew from all nickel short positions in the London Metal Exchange, and the incident subsided. It has to be said that at the critical moment, the mysterious force's action had an immediate effect. Not only did Tsingshan Group not have to pay tens of billions of dollars, it also had the opportunity to kill foreign capital. This will be another case in which my country has defeated the hunting of international financial capital since the Asian financial crisis in 1998 thwarted Soros's shorting of Hong Kong stocks. Follow and like, and share futures cases regularly.