A Chinese Steel Giant Is Upsetting the Global Nickel Market
Behind one of China’s biggest industrial companies is a husband and wife team that reinvented how to make stainless steel.
With cheaper production techniques, Xiang Guangda and his wife He Xiuqin helped change the industry in less than two decades — turning Tsingshan Holding Group Co. into a company that churns out a fifth of the world’s stainless steel and creating a billion-dollar fortune. Now it’s making waves in a different market: the London Metal Exchange.
While Tsingshan and the couple keep a low public profile, they were the talk of LME Week in London, with traders speculating on the company’s role in drawing down large quantities of metal from warehouses tracked by the LME. Tsingshan, which is privately held, says it needs the material to feed factories in China when Indonesia shuts off exports of nickel ore in January.
“There are more conspiracy theories than dinner attendees regarding what is happening in the nickel market,” Malcolm Freeman, a director at Kingdom Futures, said in an email after the annual LME Dinner in London.
In the span of two months, more than half of the nickel in the exchange network — a system designed as a last-resort for traders and hedgers — has been withdrawn, with Tsingshan said to be a key driver behind the decline in stockpiles. Inventories are the lowest in 11 years and nickel prices are up 56% this year.
Other indicators suggest there’s plenty of supply in the physical market. For example, LME nickel prices now exceed those in China, the world’s top consumer of the metal, for the first time in data going back to 2015.
The LME opened a review last month into trading in the nickel market, asking members for more details of “significant client activity.” The exchange may open a formal investigation into the issue if it finds evidence of any rule violations, said a person familiar with the matter, who asked not to be identified. No one has been accused of any wrongdoing.
Xiang and He declined to be interviewed for this story, but Tsingshan did provide written replies to questions. Xiang is chairman, while He is a director and the biggest shareholder in Golden Harbour International Pte., the company’s Singapore unit. Tsingshan isn’t a member of the LME.
Xiang and He got their big break in the late 1980s with a business making frames for car doors and windows in China’s eastern city of Wenzhou. In 1992, they moved into stainless steel, an alloy of iron, chromium and other metals like nickel. As China’s economy steamed ahead, the business grew quickly. In 1998, the company was named Tsingshan, which means “green mountain.”
“Tsingshan just stands out for being fearless”
“The company focused on bringing down production costs from the very start,” said Celia Wang, a former Tsingshan employee who’s currently an analyst at Grand Flow Resources Co. in Shanghai. “Tsingshan made a great contribution in China by making stainless steel-made products affordable to more ordinary people.”
Tsingshan is credited with pioneering the large-scale use of nickel pig-iron, a semi-refined product that’s a low-cost alternative to pure nickel, to make stainless steel. The major innovation was the rotary-kiln furnace, which allows ore to be processed, smelted and channeled into stainless steel furnaces in a continuous hot flow.
Another driver of the company’s success was the decision to invest in Indonesia during the 2000s. At the time, the country’s nickel reserves were unproven, making it a risky move. Now, Indonesia is the world’s largest nickel producer, and Tsingshan runs nickel pig-iron plants and a stainless steel complex in Sulawesi. By building efficient plants close to nickel mines, they pulled costs below even the levels achieved in China.
In July, Indonesian President Joko Widodo held a meeting with Xiang and and other Chinese executives at a presidential palace. Xiang offered “several policy suggestions” on improving Indonesia’s business environment and briefed the group on plans to expand Tsingshan’s total investment in the country to $15 billion, including a plant making nickel chemicals for electric-car batteries, according to a press release from the company. Two months later, Indonesia announced it would bring forward a ban on nickel ore exports by two years.
“Tsingshan just stands out for being fearless and with a strong vision,” said Jim Lennon, managing director of Red Door Research Ltd. and a veteran of the nickel market. “They were a small producer in Wenzhou in the 2000s and then just suddenly took off, which was in no small part due to the leadership of Chairman Xiang and his foresight.”