MILANO – The Elliott by Paul Singer goes to the office of London Metal Exchange, the centuries-old ‘house’ of metal trading that at the beginning of March had stopped trading on nickel for several sessions, at the center of a spiral of prices in a rush and downward bets that were blowing up one of the largest operators in the sector in the world. And now, after a few months, the fund known in Italy for its bets on Telecom but also for the recent sale of Milan has asked for 456 million dollars in damages to the Lme.
The cause – he writes Bloomberg – was filed by two Elliott vehicles against Lme in the British High Court on June 1, according to a statement released by the Hong Kong Exchanges & Clearing. “The management of the London Metal Exchange believes the claim is baseless and will forcefully contest it,” a statement read.
The chaos on the London Metal Exchange had lasted for a full eight days, in early March when the financial market was still dealing with the first impacts of the Russian invasion of Ukraine. But to weigh, more than the jump in prices due to the fact that Russia is among the largest producers of nickel, were the risky operations of the Chinese Tsingshan, the stainless steel giant that has recorded billion-dollar losses on the metal and that for this reason was forced to close an agreement with the creditor banks. At the origin of it all, there were the bearish bets that the Chinese group owned by entrepreneur Xiang Guangda (1.2 billion in wealth in 2021 according to Forbes) it had built on the commodity market to protect itself from possible downward movements in the prices of nickel, a metal produced by Tsingshan itself and then used both for stainless steel and for the batteries of electric vehicles.
Bets, however, exaggerated, which triggered the “margin calls”, that is the requests to integrate the guarantees deposited on the sidelines of the bets themselves and therefore the tilt of the system. The so-called “short squeeze” was thus generated, that is a situation in which downward bets broke out in the hands of those who placed them (a similar thing happened when the retail market challenged the large funds that bet against GameStop). At that point, Lme decided to stop everything (from 8 March) and to cancel 3.9 billion dollars of orders on the market: a very controversial move.
Elliott’s move increases the pressure against the LME to this end, precisely because of that decision – which has been widely criticized – to stop trading and cancel what has been transacted up to that moment. The London Metal Exchange is also facing a review by UK regulators, but on its side it claims it had to act given the “systemic” risk that was generated.
Elliott’s lawsuit challenges the decision to cancel the exchanges, arguing that it was illegal both for public law reasons and because it was a violation of human rights. From the point of view of the fund, if that stop saved the bears, on the other hand it prevented those who had “long” positions – or bets for price growth – from collecting their gains.