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Assignment – BDI that we are interested in is the Baltic Exchange Dry Index (BDIY)

Paper details:
Write an essay (2000-2500 words) to the case of LME Nickel futures price spike. Below is a
drafted logic chain. You can choose to follow it, but you are very welcome to create your own
by rearranging the order and/or enriching it. [40 marks]

1) What happened on March 7th and 8th in LME Nickel market?
2) What do you think are the reasons for LME Nickel futures price spike? Do you think it is
purely caused by unbalanced demand and supply?
a) What causes the unbalanced demand and supply?
b) What are the top nickel producers in the world?
c) Are any big events happening to impact on the nickel production, transportation?
d) What is BDI? Why is it relevant?
e) What is nickel needed for? Are more nickel needed?
f) Do you think there is a game of capital? How to judge whether there exists a game of
capital? What are the prices of other non-ferrous metals on March 7th and 8th?
g) Who are left exposed to big trading losses with the price spike, futures buyer or seller?
h) Who are left exposed to big trading profit with the price spike, futures buyer or seller?
i) What is short squeeze and what is long squeeze?
j) Do you think LME nickel price spike will result in a short squeeze or a long squeeze?
3) Tsingshan Holding Group Co was the dominant seller of nickel futures in recent months.
What business does Tsingshan do? Does it do upstream or downstream Nickel business, or
4) Why did Tsingshan take a short position?
5) Do you think Tsingshan ex ante take the correct position in direction, long or short?
6) Do you think Tsingshan’s hedging position is appropriate, insufficient, or excessive?
a) What is the size of Tsingshan’s hedging position?
b) What is the production of nickel worldwide from 2010 to 2021?
c) What is opening stock?
d) How big is the LME nickel opening stock?
e) What will happen if two Panadols if you are unwell? What will happen if you take 20
Panadols? What will happen if hedge position is incorrect?
7) How to understand that “taking a large position without compartments can be easily
“snipped” in commodity futures market?
a) Search for LME Nickel futures contract specification. What is the standard of the
underlying? In practice, what nickel product does LME accept for physical delivery?
b) Is Tsingshan’s product certified for futures delivery? If not, is this hedge a perfect
hedge? Any underlying mismatch? How does it affect the margin requirement? How
does it affect hedging position?
c) What are the choices usually for futures seller at the maturity?
d) If Tsingshan was market-cornered because of lacking spot for delivery, then what are
the choices left?
e) What does it mean cash settlement and physical delivery, generally, are they the same
to futures sellers? Are they the same to futures buyer? Alternatively, on what
conditions, are they the same? On what conditions, do they result differently?
f) In particular, in regards to Tsingshan, what are the differences between finding
200,000 tons of Nickel for delivery and close out its position?
g) What are the differences between Tsingshan’s finding 200,000 tons of Nickel for
delivery and close out its position, to the “hidden sniper” (We call the counterparty
“sniper” in this assignment)?
8) What are the Actions taken by LME? How does it affect Tsingshan and the “Sniper”?
9) What are the lessons to learn from Tsingshan, “Snipers”, institutional investors, retail
investors, and regulators (LME)?