Paranoia, yes, I know, but I can’t help but wonder if the Chinese government is sabotaging this primary – and close to only – market for metals:
One Chinese metals producer, Tsingshan Holding Group Co., sat at the center of the storm. The group had wagered a massive bet that the price of nickel would fall. At its peak, Tsingshan’s short position was equivalent to about an eighth of all of the outstanding contracts in the market: If prices had stood at $100,000 the company would have owed the LME [London Metals Exchange] $15 billion, according to the Wall Street Journal.
The spike generated margin calls higher than the LME had ever seen — and if paid, they would force multiple defaults that would ripple through the exchange and destabilize the global market.
Exchange executives scrambled to respond, ultimately throwing a lifeline to the brokers representing Tsingshan and other producers. In an unprecedented move, they halted trading and retroactively canceled all 9,000 trades that occurred on Tuesday, worth about $4 billion in total. …
But in recent years the exchange has been pushed to start moving into the 21st century. Until 2012, the LME was owned by its members, the same people who traded on the exchange — but then it was sold to Hong Kong Exchanges and Clearing (HKEX) for $2.2 billion. The new owners raised fees to recuperate some of their investment, upsetting the community. Volumes dropped significantly, and the chief executive and operating officer left. [CNN/Business]
Thus destroying trust in LME, the article notes. LME could be considered a critical part of the world economy’s infrastructure. Could it be a target for China?
