JPMorgan Chase Reduces Base Metals Exposure Following Nickel Crisis

JPMorgan Chase & Co, Wall Street's largest player in the metals market, has significantly scaled back its base metals business in the aftermath of last year's nickel crisis. The crisis was sparked by a massive short squeeze involving Chinese nickel producer Tsingshan Holding, which led to the London Metal Exchange (LME) suspending its nickel market and canceling $3.9 billion worth of trades. In response, JPMorgan has dropped or cut credit lines to numerous Indian metals clients, forcing them to seek alternative brokers. The bank has also reduced employee bonuses and halted new inventory financing deals for copper in China as part of its ongoing review of commodity exposure.

JPMorgan's review began in response to heightened market volatility even before the nickel short squeeze last March. The bank's base metals team is under strict internal scrutiny, and bonuses for many have been cut. JPMorgan's role as the biggest counterparty of Tsingshan and financier of Chinese copper trader Maike Metals, which underwent restructuring last year due to liquidity issues, has pushed the bank to reduce its exposure to the metals and commodities markets. It recorded a $120 million loss related to nickel in its Q1 results last year.

The bank has cut numerous base metals clients in Asia, particularly privately owned Chinese companies. It now only works with a few large, long-standing clients in the region. The bank has also stopped new inventory financing in China, which Bloomberg reported last year. JPMorgan declined to comment on these changes.

As JPMorgan pulls back, other banks, such as Nanhua Financial UK, are stepping in to accommodate clients' hedging requirements. Nanhua CEO Nong Yan said that many Indian clients have inquired about opening accounts with the company after JPMorgan canceled their accounts. Yan added that not only JPMorgan, but all banks are focusing on their very largest clients. Broker Marex Financial has also been picking up new clients as JPMorgan and other banks reduce their exposure to metals and commodities.

JPMorgan's review of its activities across commodities has led to several gold refineries having their credit lines cut since the nickel crisis. There have also been recent departures from the bank's commodities team, including Jack Luo, who played a key role in handling the company's relationship with Tsingshan and Maike, and Amar Singh, the head of commodities sales for Asia Pacific. These departures are not connected to the ongoing review.

The retreat by the longstanding market leader comes as the metals world grapples with wild price swings, high interest rates, and a series of scandals that have sapped market liquidity. Some other mainstay banks have also pared back their exposure, particularly in Asia. However, some American and European banks have sought to capitalize on JPMorgan's pullback, seeking to expand their presence in the metals market.

Despite the ongoing review and cutbacks, a person close to JPMorgan said the bank continues to have a strong base metals business both globally and in Asia. The bank's role in the nickel crisis last year, when the LME was forced to suspend nickel trading after prices doubled, and its involvement in other high-profile incidents have highlighted the risks of trading in China's base metals industry.