's up guys and welcome back to wall street millennial on this channel. We cover cover everything related to stocks and investing ever since january of 2021 gamestop has become with the phenomenon known as a short squeeze when trading platforms. Including robin hood halted trading and gamestop shares this was viewed by many as an attempt to protect short selling hedge funds at the expense of individual investors. While the gamestop saga.

Got the most attention in the press short squeezes happened. All the time with investors on the wrong side often losing billions of dollars when russia invaded ukraine in february commodity prices went wild as investors feared a sudden halt of russian exports right after the invasion began the price of nickel. Almost immediately skyrocketed doubling from twenty five thousand dollars to almost fifty thousand dollars per ton. It would have gone up to one hundred thousand dollars had the london metals exchange not halted trading the catalyst for this parabolic rise in price was a chinese billionaire by the name of xiangguang da.

Who runs the massive chinese metals company tsingshan group the ting shan group is the largest metal producer in the world accounting for 25 of all stainless steel production and more than 10 of all nickel production in addition to producing metals. It also acts like a giant hedge fund making billion dollar bets on metal prices not foreseen the ukraine war they put on a massive short position on nickel being that the price would go down when the price skyrocketed his paper losses exceeded 10 billion dollars. And would have bankrupted his entire company. If you owe ten thousand dollars to a bank.

You're in trouble. But if you owe 10 billion dollars to the bank. The bank is in trouble. This is a situation that the lme found themselves in seeing shine group was the equivalent of lehman brothers to the metals industry had they gone bankrupt.

They would have taken the whole market with them in a move eerily similar to robin hood's halting of gamestop. The lme halted trading of nickel in an effort to save the tingshan group investors who went long nickel were furious as they missed out on billions of dollars worth of gains that they could have made had trading not been halted so what happened after the lme reopened trading the price. Steadily decreased and xiang was able to cover his short position for minimal losses. Today.

The company is doing fine instead of being bankrupted as many commentators predicted xiang is still a billionaire standing at the pinnacle of the metals industry in this video and podcast. We'll look at why the ting shine group had a massive short position on nickel and why the london metals exchange bailed them out this video is brought to you by manscapedcom the global leader in men's grooming tools and hygiene solutions. Manscaped offers everything you need for head to toe grooming as part of their performance package bundle my favorite products in the collection include the lawnmower 40. Waterproof body hair trimmer and the crop preserver ball deodorant it helps trim the hedges and keep the area cool hydrated and smelling great all day long manscaped is always innovating and they just released a new collection of anti chafing high performance boxer briefs with both function and fashion in mind.

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Wall street at checkout and now back to the video. Xiang guangdong started off as a factory worker. But eventually quit to build his own industrial company. He started off making car doors and selling them to automobile companies within china.

But he realized the bigger opportunity would be creating metals he started off producing stainless steel and eventually expanded to a wider range of metal products today his company employs 75 000. People and xiang comfortably enjoys billionaire status to say that they are massive would be an understatement they are the single largest metal producer accounting for 25 of global stainless steel production in fact his company is so dominant that people in the industry simply refer to xiang as the big shot. He expanded his company by buying a steak and a massive nickel mine in indonesia. He would transport.

The nickel ore from the mine to his mills in china to refine them into industrial grade nickel. They would then sell the nickel to end customers who make rocket engines batteries and a whole host of other industrial products. One of the major problems all commodity producers face is price volatility over the past 20 years. The price of nickel has ranged from as low as five thousand dollars per ton to as high as fifty thousand dollars.

If the price falls too low you won't generate enough revenue to keep the lights on at your factory. And you can quickly go bankrupt so in addition to operating factories. Most large commodity companies have sophisticated financial teams who trade metal derivatives to hedge their exposure. Many commodities companies trade purely to hedge their own production.

Even if their hedges lose money on average. This is just a cost of doing business. But seeing shan was different in addition to hedging their own production. Xiang also wanted his financial traits to be profitable in their own right in this way.

Tingshan functioned. Almost like a massive hedge fund as the founder and ceo of the largest stainless steel company in the world perhaps. Nobody knew. The metals market better than xiang.

Did he would use his unique expertise and industry knowledge to inform his company's trading activities also because xingshan was so big their own production decisions had the potential to move the entire market in 2022. Xiang was planning to ramp up nickel production as factories. The increased production would flood the market and push prices down. So he called up a few banks and said he wanted to put on a massive short position on the price of nickel.

His positions were structured as over the counter transactions meaning that they were not done on an exchange he basically signed contracts with the bank saying that if the price of nickel goes down you pay me. And if the price of nickel goes up i pay you these banks. Which included jp morgan aren't in the business of metal speculation. They want to completely hedge their exposure to ting shan's short position.

So they went to the london metals exchange and put on massive short positions equal to the over the counter short position that they had with xing shan thus ting shan built up a massive short position on the lme. But most people didn't know how big it was because it was off the exchange this sounds eerily similar to bill huang. Because he used so many different banks as middlemen. Nobody knew how large his positions were and he ended up owning.

30 of paramount's outstanding shares. Before the whole thing blew up to be clear. There's no suggestion that xiang misled his banks so unlike huang he didn't do anything illegal. But it's the same problem that when you have over the counter transactions that happen outside of the exchanges you can build up massive positions.

Which become a ticking time bomb while xiang is an expert in the metals industry. This didn't help him foresee. Russia's invasion of ukraine. Russia is a major nickel exporter and investors fear that this could be targeted by western sanctions.

Even though no nickel sanctions were announced at the time traders started panic buying in fear of future sanctions. Xiang's banks got nervous and called him asking him to post more collateral. So he started covering his position by this point. Seeing china become a whale and any attempt to close her position would have a massive impact on the price.

His buying pressure pushed up the price even higher and would eventually became a massive short squeeze at the peak of the squeeze. His paper losses exceeded 10 billion dollars. And to make matters. Even worse.

Billions of these losses had already been realized at this point. The london metals exchange was panicking the market was completely divorced from its fundamentals. And there's no limit to how high the price could go the people who were long nickel were selling it to tingshan for insanely high prices. If tingshan goes bankrupt.

It won't have the money to make good on these trades as insurance for these type of situations. The lme has a default fund. It is meant to pay for these trades in the event that a short seller goes bankrupt. However this fund.

Only had about 1 billion dollars with tingshan's losses standing at 10 billion. The default fund didn't have nearly enough to cover it the lme itself would default in the trades and the whole thing would collapse. So what did they do they halted trading and in some ways their trading halt was way worse than the gamestop trading halt. If you got lucky you could have sold your gamestop shares for 300 on the day before the trading halt and walked away with a handsome profit and many people did just that.

But if you were a long nickel going into the short. Squeeze you wouldn't have been so lucky the lme retroactively cancelled 39. Billion dollars worth of trades a lot of investors thought they made a lot of money. But the trade was cancelled before the funds could be settled.

The decision likely saved ting shan from bankruptcy as it turns out the russia fears were overblown and nickel was not sanctioned after the exchange reopened trading the price gradually decreased over the next few months. Xenshin covered his position recognizing an estimated 1 billion loss while tingshan was able to absorb this 1 billion loss. They would not have been able to absorb the 10 billion had the me not intervened. So it's not an exaggeration to say that the trading halt saved xenchan of course.

The investors who had their trades cancelled were not so happy. The hedge fund. Elliott management sued. The lme for 456 million dollars.

In lost profits. They say that the trading halt was unlawful and constituted a violation of their human rights. This might be the first time. A hedge fund has ever argued for human rights.

In court. The lme nickel debacle. Shows that trading halts aren't always a conspiracy to benefit. The big hedge funds at the expense of individual investors.

Very few retail investors trade on the london metals exchange. It was really a hedge fund versus hedge fund battle. And seeing shannon got a much better deal from the lme than the gamestop short. Sellers got from robin hood gabe plotkin.

Was a single most high profile gamestop short seller. His hedge fund lost more than 50 of its value from the short squeeze and eventually had to shut down. Robin hood. Never retroactively canceled trades like the lme.

Did and in fact. He covered his position. Before trading was even halted on the other hand. The big shot xiang guangda maintained his massive metals empire.

And remains a billionaire to this day alright guys that wraps it up for this video. What do you think about the lme's trading halt. Did the team shine group get an unfairly good deal let us know in the comments section below as always thank you so much for watching. And we'll see in the next one wall street millennial signing out.

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