The nickel market experienced an epic short squeeze in March, leading to the London Metal Exchange (LME) cancelling all trades from that day to the previous one, with a total value of over $3.9bn. The market broke, and amid concerns about the solvency of those with margin calls and concerns around one particularly large short seller, the LME suspended trading. Influential Chinese businessman Zhang Guangda, known as the founder of one of the world’s largest nickel and stainless steel producers, Qing San Holding, is reported to have a significant impact on nickel prices, according to a report by Coin Bureau.
The Biggest Market Scandal of 2022
If you thought the GameStop saga of last year was big, get ready for the biggest market scandal of 2022. This scandal goes to show that in financial markets, the big guys always win. It all started with one of the biggest short squeezes in recent memory that led to an exchange cancelling trades and bailing out bankers and billionaires.
The Short Squeeze and Exchange Cancellation
The short squeeze in question involved the nickel market, a commodity used in everything from batteries to jet engines. On March 8th, the nickel market began a mind-boggling rally that was being driven by an epic short squeeze. Market participants had sold an asset short in the hope that its price would fall, but when the price moved against them, they had to go into the market and buy the asset to cover their short position.
This created a situation in which the actions of those who were short exacerbated the moves. The London Metal Exchange (LME), where the bulk of the trading activity took place, held a special committee meeting of metal and legal experts who made decisions about what to do with the market. They decided to allow the market to continue trading, but things quickly spiraled out of control.
Prices continued to skyrocket, with legitimate fears in the market as those who had sold short anticipated a wipeout. One particularly large short seller had placed all of his trades through numerous brokers who now had to pay margin, even though their client had not posted margin to them. The LME suspended trading and canceled all of the trades that had taken place that day, rolling them back over 5,000 trades with a total value of over $3.9 billion dollars.
The Influence of Billionaire Zhang Guangda
In Chinese commodity circles, Zhang Guangda is the billionaire founder of a company called Ching San Holding Group. This company is one of the world’s largest nickel and stainless steel producers. Zhang got his start fixing machinery at a state-run fishery during the 1980s and took advantage of China’s economic reforms to become a businessman.
Through a number of technological innovations, he upended how nickel was made and made some large-scale bets while investing in Indonesia. This transformed Ching San into the largest nickel producer in the world. Given that he holds so much heft in the supply of nickel, he can have a huge impact on prices and has used this to his advantage by teaming up with some of the biggest players on Wall Street.
The cancellation of trades and bailouts of bankers and billionaires in this scandal show that the big guys always win in financial markets. The nickel market short squeeze, unprecedented market moves, and the influence of billionaire Zhang Guangda demonstrate just how wild and unpredictable these markets can be. As always, education and entertainment are what we dispense, so contact a financial advisor if your finances are a mess.