JPMorgan reduces credit to Tsingshan customers in China and metals customers globally

JPMorgan reduces credit to Tsingshan customers in China and metals customers globally

By Eric Onstad, Pratima Desai and Peter Hobson

LONDON (Reuters) – JPMorgan Chase & Co (NYSE): has cut lending to China’s Tsingshan, one of the world’s largest nickel producers, while scaling back credit to other customers in Europe and Asia after reviewing the risks, sources close to the situation said.

Tsingshan Holding Group was at the center of a crisis on the London Metal Exchange in March when nickel prices doubled within hours, forcing the London Metal Exchange to halt trading and cancel billions of dollars in deals.

Two sources familiar with the matter said Tsingshan reached out to at least two LME brokers to become customers or increase lines of credit following JPMorgan’s actions.

Two sources said JPMorgan is one of the biggest banks in the metals space and that its funding cuts are sparking a chill across the sector.

Five sources, who asked not to be named because they are not authorized to speak to the media, said JPMorgan has cut credit to many customers in Asia and Europe or given them notice that it will do so by the end of the year.

JPMorgan declined to comment and Tsingshan was not immediately available for comment by phone or email.

In March, JPMorgan had the largest exposure of about 10 banks and brokers for large short positions, or lower price bets, held by Tsingshan.

These attitudes, mostly in over-the-counter (OTC) derivatives, were blamed for the surge in LME prices on March 8 that were already soaring in the wake of the Russian invasion of Ukraine.

Tsingshan’s short deals spurred multibillion-dollar margin orders that threatened to drive some banks and brokers into default.

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While trading on the London Metal Exchange was suspended, the Chinese company agreed to a firm deal with its financiers that would 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.

high interest rates

Strict interest rate increases by central banks and fears of a global recession have affected the metals sector more broadly, dampening activity and causing participants to reduce risk.

β€œThere has been a general tightening in funding for the metals sector,” said Mark Bailey, chief brokerage at London Metal Exchange Sucden Financial, who declined to comment on JPMorgan and Tsingshan.

He said that the low interest rates in the past led to the emergence of cheap credit which was offered by many banks to attract commodity customers.

“Now those customers who have adopted find the cost of credit and access to liquidity difficult after the war,” he said.

“Customers looking to get into the market don’t find it as easy as before, we’ve definitely been a bit stricter on client terms.”

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