‘Malicious short selling’ used as a weapon to attack metal short sellers

Industry insiders deny rumour of an official probe into short selling in metal

PUBLISHED : Thursday, 26 November, 2015, 8:04pm
UPDATED : Thursday, 26 November, 2015, 8:04pm

“Malicious short selling”, the term invented by the Chinese securities regulator in July as it tried to stem a market rout, has become the latest catalyst stirring the mainland metal market.

Investors rushed to close their short positions in non ferrous metals on Thursday, which pushed the price of nickel up by more than 8 per cent in Shanghai during the afternoon, after Chinese and international media reported that the mainland regulators were considering a request from an industry group to investigate short selling in domestic metal contracts amid recent price declines.

But industry insiders said some metal traders were making use of the term “malicious short selling” to attack short sellers, and the surge in prices would soon lose momentum.

The Chinese news app on Thursday identified Jinchuan Mining, the nation’s top nickel producer and third-biggest copper producer by capacity, as the industry player that complained to the State Council and the China Securities Regulatory Commission about “malicious short selling”, saying it had caused losses of 10 billion yuan.

However, a manager at Jinchuan Mining told the South China Morning Post on Thursday the report was “utterly a rumour”.

“It is totally amateur to make such a charge as ‘malicious short selling’. Jinchuan itself holds short positions. Short selling is a totally normal market practice,” he said.

“Some people are using our name, and the authorities’ names to attack the short sellers on the market.”

Wang Weiwei, a Tianjin-based senior metal analyst with First Futures, said it was unlikely that the authorities were looking into short selling on the futures market.

“We have long positions, and short positions on this market. I cannot see how to recognise the short positions created with ‘malicious’ intentions,” he said.

“The charge could be taken as a joke by investors before, but things changed after July, when the securities authority invented this term and instigated a serious crackdown.”

The China Securities Regulatory Commission and Ministry of Public Security introduced the term “malicious short selling” in July and have raided more than 10 traders and fund houses since the mainland equity benchmark plunged by 30 per cent from a seven-year high reached in mid June.

With analysts questioning the feasibility of discerning the intentions behind trading practices, the authorities have switched to levelling more straightforward charges such as “inside trading” when making arrests and launching investigations in recent months.

Wang said some people had made use of the subtle change in people’s sentiment regarding short selling.

“However, that does not help to change the oversupply reality, particularly in aluminium,” he said. “And the price rebound cannot be sustained after, at most, two or three days.”

Nickel gained more than 8 per cent in Shanghai before it closed 5.73 per cent higher, at 70,800 yuan per tonne. Aluminium rose by 3.97 per cent and copper nudged up 1.94 per cent in Shanghai.