23 June 2023 – In the case of cancelled nickel trades worth more than 10 billion dollars, more and more details come to light. Also, that the LME had been aware of previous market manipulations by the Chinese Tsingshan Group. And copper stocks continue to fall.
LME nickel case: LME was aware of manipulations by Tsingshan
In the case currently being heard in the United Kingdom over cancelled nickel deals worth about $19.7 billion between the London Metal Exchange (LME) and U.S.-based hedge fund Elliott Associates and market maker Jane Street Global Trading, more and more details are emerging about an apparent system failure.
LME was aware of Tsingshan market manipulation
For example, the LME had known for some time that China’s Tsingshan Group had been involved in similar market manipulation at least once in the near past (2019). Which confirms what we had already reported last year.
And despite knowing about the group’s methods, the LME had not found it necessary to investigate – because the group’s visible position, while large, had not been a cause for concern.
LME decision reasonable?
LME lawyer Jonathan Crow said at the hearing in London’s High Court that the LME did not investigate Tsingshan and only got data several days after it cancelled deals showing the extent of the huge OTC position held by Tsingshan. He also reportedly said that it had been reasonable on the part of the LME not to initiate an investigation, as there had only been media reports and rumours of a large position on the part of Tsingshan.
Not the only case of market manipulation?
However, 2019 may not have been the only case where nickel prices were deliberately maneuvered in one direction by the Chinese group. In 2021, there were also clear indications that the Tsingshan Group was planning to produce 100,000 MT of nickel matte from nickel pig iron as a result of a press release, which caused nickel prices to fall by around 16%. Pikant thereby: The period in which this happened, was almost exactly the same, as with the event of 8 March 2022 – likewise at the beginning of March 2021.
LME favorites purposely kept from going bust?
Overall, it seems that here, as also assumed by us as early as 2022, and now also argued by Elliott and JSGT in court, that the LME would have cancelled the nickel trades to save Tsingshan. Something the LME of course clearly disagrees with, stating that it would have had no other choice. As is now well known, it certainly would have had.
System failure and poor crisis management
The LME’s systemic failure, crisis management, and presumably many more cases of market manipulation than have been admitted so far, give rise to the disconcerting feeling and ugly smell of insider trading and favoritism. In the United States, the FBI would probably have already stormed the offices of the LME and seized everything that could be even remotely related to the case. In any case, everything cries out for legal, but also personal legal consequences for the responsible persons.
Copper inventories continue to fall
Copper supply in London Metal Exchange (LME) approved warehouses has reached its lowest level since October 2021 due to significant stocks set aside to leave the LME system. Overall, 62.5% of total copper held is earmarked for delivery in the coming weeks. New warrant cancellations, mainly in New Orleans, have been observed, representing 95% of the total stock. When large warrants are cancelled, this tends to raise supply concerns and affect the price differentials between contracts. When there are supply concerns, short-term contracts typically command a premium. The price of the copper cash contract was higher than that of the 3-month futures contract. LME benchmark copper prices rose by 0.8%. This was the highest level since 2 May.
Copper is a leading indicator of economic health
Copper is considered a leading indicator of economic health. After all, it is used virtually everywhere – in homes and factories, electronics, and power generation. And in recent years, copper’s role in growing electric vehicle production has further boosted demand. Emptying copper inventories indicate a steady and high demand from the industry, together with the tight supply situation for copper on the part of the mining companies, this could push prices up further.
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