JPMorgan Reduces Lending to Metal Companies, Including China’s Tsingshan
- September 20, 2022
- Posted by: Quatro Strategies
- Category: Mining
JPMorgan Chase has reduced credits to China’s Tsingshan, one of the world’s top nickel producers, while also paring back credit to other customers in Europe and Asia after a review of risk. Tsingshan Holding was at the center of nickel crisis at the London Metal Exchange (LME) in March, when nickel prices more than doubled in a matter of hours, forcing the exchange to cancel billions of dollars in trading deals.
Tsingshan has approached at least two LME brokers to become a client or increase credit lines after JPMorgan’s actions. The paring back of finance from the American investment bank, one of the biggest lenders in metals industry, has sent shockwaves throughout the sector.
JPMorgan has curtailed credit to several customers in Asia and Europe or given them notice that it will do so by the end of the year.
In March, JPMorgan had the largest exposure of about 10 banks and brokers to large short positions, or bets on prices falling, held by Tsingshan.
Those positions, much of them in over the counter (OTC) derivatives, were blamed for the wild spike in LME prices on March 8 that were already climbing in the wake of Russia’s invasion of Ukraine.
The Chinese nickel giant’s short positions spurred billions of dollars of margin calls that threatened to push some banks and brokers into default.
After LME suspended nickel trading, the Chinese company agreed a stand-still deal with its financiers allow it to gradually reduce its positions.
In April, JPMorgan made a provision of $120 million for a loss from the nickel crisis, but has not provided an update since then on its losses.
Hawkish interest rate hikes by central banks in response to skyrocketing inflation caused fears of a global recession, which also weighed on the metals sector more widely, dampening activity and causing participants to reduce risk.
In the past, low interest rates had given rise to cheap credit that was offered by many banks to attract commodities clients. But now those clients that have been reliant are finding that the cost of credit and access to liquidity is difficult.
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