One of the Chinese investors who played a key role in last year's nickel drought is preparing to meet Matthew Chamberlain, chief executive of the London Metal Exchange, in what would be the first face-to-face meeting since the crisis that has upended the global metals industry.
Chen Hongliang, chairman of Zhejiang Huayou Cobalt Co., plans to discuss the company's application to register nickel for delivery on the LME at a meeting early next week, according to people familiar with the matter. If implemented, the plan could help revive trading in the LME's beleaguered nickel contract.
Hurray is one of the firms with Xiang Guangda that has a smaller short hedge position. Its founder is a close ally of Xiang Guangda, who was at the center of last year's crisis.
A year after the short squeeze that brought the London Metal Exchange to the brink of collapse, the nickel market is still barely functioning, with trading volumes falling sharply and prices often experiencing wild swings. Hurray's meeting in London could be the first step in bringing a fresh wave of nickel metal to the LME, which could boost liquidity and help it reconnect with the rest of the global nickel market.
Mr Chen's visit follows another major milestone for the LME nickel contract, which announced on Thursday that it would finally return to normal trading from March 20. The nickel market remained closed during Asian hours, making it more difficult to arbitrage between London and Shanghai contracts and leading to lower trading volumes. The surge in nickel prices was sharpest in Asia during the squeeze.
Business partner
The meeting is also heavily symbolic, coming almost exactly a year after the crisis that led to the LME closing the market. While the short squeeze in March last year focused on Mr. Xiang and his Tsingshan Holdings Group Co., Huryou was one of several firms with smaller hedge short positions. Chen Xuehua, chairman of Huayou Group, and Xiang Yong, chairman of Qingshan Group, come from the same province in China and are long-time business partners.
The LME is open to the idea of listing Huayou, some people familiar with the matter said.
Huayou didn't respond to an emailed request for comment. A spokesman for the LME declined to comment.
Other Chinese producers, including Qingshan, are likely to apply to register nickel on the LME if Huryou's listing is successful, said the people, who asked not to be named.
Huayou's plan to register to refine nickel highlights a key challenge for the nickel market: while Chinese companies, led by Tsingshan, have invested heavily to add new supplies to meet demand for electric car batteries, much of the production is of other types of nickel that cannot be delivered on the LME.
Now both Aoyama and Huru are ramping up production of refined nickel - partly in response to a tighter market for refined metals than for other products, and partly to limit the severity of any future squeeze.
Huryou's plan also represents a vote of confidence by Chinese producers in the LME nickel market. While the LME has drawn the ire of many users, there are still few viable options for those looking to trade nickel derivatives on international markets.
The global benchmark has been illiquid and volatile since March last year. At that time, nickel prices surged 250 per cent in little more than 24 hours because of Tsingshan's large short position. Aoyama failed to meet margin calls when prices rose sharply after Russia's invasion of Ukraine, and avoided bankruptcy only after the LME suspended trading and banks agreed to hold off.
While the LME effectively bailed out Aoyama by cancelling the trade at the highest price to prevent a cascade of defaults across the market, the move came at a cost. Hkex is still struggling with fallout from lawsuits to regulatory investigations and has promised to outline a series of reforms by the end of the first quarter.
Xiang Xiang and Hua You Chairman Chen have a long history of cooperation. They often travel together on business and have held joint meetings with Indonesian President Joko Widodo, most recently at the g20 summit in November, according to people familiar with the matter.
Metallic plant
Tsingshan Group and Huayou Group are again moving in tandem in the nickel market. Both companies are building new refining metal plants, and Bloomberg reported last month that Aoyama was planning a major overhaul of its production mix.
The change could help prevent short selling pressure in the future, especially if Chinese companies successfully register their brands and take delivery under LME contracts. Huryou is also seeking to list its brands on the Shanghai Futures Exchange, the people said.
Huayou will apply to list products from its plant in Quzhou, in eastern China's Zhejiang province, according to people familiar with the matter.
The ability of Chinese producers, particularly Tsingshan, to take delivery on exchanges could also help encourage banks and brokers to allow Xiang to take new short positions. Bloomberg reported last year that many were wary of taking large positions for the company. The company uses the LME to hedge nickel prices. The absence of Xiang, one of the biggest players in the market, has led to a continued lack of liquidity in the nickel market.
