Who Is the Unlikely Cast Behind Nickel's Big Squeeze?: Bloomberg

It’s been three weeks since nickel was suspended on the London Metal Exchange after a 250% price spike, and while trading has resumed, the market remains all but paralyzed, reported Bloomberg.

Accusations have started to make rounds as the crisis worn-out. Investors are preparing lawsuits; the LME and its regulator, the Financial Conduct Authority, are likely to run investigations.

Related: New Week New Limit Down On LME, Benchmark Nickel Price Down 15%: CNBC

When nickel rose rapidly after Russia invaded Ukraine, Tsingshan, the world’s biggest nickel and stainless steel company, had built a giant short position in LME nickel in a bet that increasing supply from his company would drive down prices, struggled to pay its margin calls, setting the stage for a short squeeze.

At the center of the crisis is entrepreneur Xiang Guangda, owner of Tsingshan Holding Group Co. Xiang’s position was unusually large, equivalent at its peak to roughly one in eight of all the contracts outstanding in the LME nickel contract.

Bloomberg notes Xiang held about 30,000 tons of his short position directly on the LME, less than a fifth of its total size of over 150,000 tons. The vast majority was held in bilateral derivative deals, known as “over-the-counter” positions, with banks led by JPMorgan Chase & Co. JPM, including BNP Paribas SA BNPQY, Standard Chartered Plc SCBFF, and United Overseas Bank Ltd UOVEY.

JPMorgan’s leading role means that the U.S. lender arguably had better insight into Tsingshan’s market-roiling position than the LME did: about 50,000 tons of the short position was held via OTC bets with JPMorgan, Bloomberg has reported.

Related: JPMorgan In Talks With Tsingshan To Contain Nickel Crisis: WSJ

Bloomberg reported that several other Chinese firms amassed short positions as Xiang’s allies. Volkswagen AG VWAGY has one of the largest long positions in the market, at the equivalent of over 100,000 tons, a person familiar with the matter stated. 

Trader and miner Glencore Plc GLNCY is another sizeable long-position holder and has at times controlled more than half of the available inventories in LME warehouses. 

A person familiar with the matter stated that Glencore’s overall position in LME nickel is short — it uses the exchange to protect against price risk on the metal it ships worldwide. But it bought LME stocks to deliver the nickel from the exchange warehouses to its customers after a surge in freight costs made shipping metal from Asia to Europe and the U.S. much more expensive.

Investors have heavily criticized the 145-year-old home of global metals trading, The London Metal Exchange, for its response to the crisis. Since reopening two weeks ago, the nickel market has yet to reach an equilibrium. 

“Given our role in supervising the LME, we have been, and will continue to be, taking a very close interest in how it is managing and responding to the issues,” the FCA said in a statement Tuesday.

Regulators have publicly admitted they’re in the dark about commodity markets.

When the Bank of England’s Financial Policy Committee met earlier in March, it was important to assess the potential contagion between commodity market volatility and the financial system more broadly. But, according to a published summary of the discussion, “the assessment of risks was made more difficult by the relative opacity of commodity derivatives markets.”