Australian investors remain unconvinced that reports of the bailing out of Chinese nickel group Tsingshan Holding Group takes pressure off Nickel Mines.
Nickel Mines shares fell 22% at one stage on Wednesday when it emerged that its Chinese partner in a half-billion-dollar nickel metal and mining project in Indonesia had gotten caught up in an $US8 billion LME nickel trading scandal of its own making.
After a pause in trading in the wake of the early plunge Wednesday, the Nickel Mines shares price recovered most of the losses (to close down 4.7% at $1.40) after it told the ASX it had been assured that Tsingshan would not be selling any of the shares it owned in Nickel Mines.
But on Thursday, Nickel Mines shares lurched lower, dropping to a $1.22 close for a loss of 13.1% on the day. That’s a fall of more than 17% in two days and the shares are back to where they were in mid-November.
Investors are still wondering if the Chinese company will end up a forced seller of the 18.7% of Nickel Mines shares it holds. The big fall yesterday tells us there is more uncertainty in the minds of investors about that stake than there were on Wednesday.
Reports on Bloomberg, Reuters, the Financial Times and The Wall Street Journal on Wednesday night and Thursday morning said Tsingshan Holding Group has secured enough metal to settle all its loss-making positions on the London metal Exchange and had also receiving hundreds of millions of dollars in loans to meet margin calls.
Media reports said Chinese authorities had directed Tsingshan’s domestic banks to offer more credit lines to the company. The majority of these new loans will be used for margin calls on its existing positions on the LME.
These loans will have to be converted to longer term deals to reassure markets that the Chinese company – the world’s biggest nickel producer – can survive.
The reports say Tsingshan received bridging loans from banks including JPMorgan Chase, America’s largest, and China Construction Bank Corp. Bloomberg had earlier reported that Tsingshan had obtained a loan package from domestic and international lenders.
The London Metal Exchange suspended the nickel market early Tuesday, the first time it had paused trading in a metal contract since the collapse of an international tin cartel in 1985.
The decision followed a doubling in prices in a couple of hours that took the price to above $US101,000 a tonne before settling back to around $US48,000 when the LME suspension kicked in.
The LME says the nickel market will remain suspended until early next week. Wednesday evening saw prices for some nickel contracts on the Shanghai Futures Exchange fell the maximum 17%. Previously, some nickel contracts had been suspended for rising by the maximum amount.
“Clearly these are unprecedented times and they have called for us to take action we would not wish to have taken,” LME Chief Executive Matthew Chamberlain said.
“We faced a choice between ensuring the overall and longer-term financial stability of the market, and the shorter-term trading profits of those participants who had traded on Tuesday morning.”
