(Yicai Global) March 9 -- China’s banking and insurance watchdog has asked banks in the country to submit details about the risk exposure of their offshore business amid concerns over Tsingshan Holding Group, a metals giant that faces huge trading losses because of massive swings in the nickel market, bankers told Yicai Global.

“The regulatory authority is asking banks to submit their risk exposure and is strictly examining many Chinese and foreign companies and banks,” one banker said, noting that the case of Tsingshan could potentially cause severe losses for many banks.

“It’s been less than two years since Bank of China caused losses to investors by taking a long position in crude oil futures,” the person noted.

Market speculation has it that Wenzhou-based Tsingshan has a short position of about 200,000 tons of nickel, which it cannot deliver due to a lack of spot product and skyrocketing futures prices, China Securities Journal reported yesterday.

Nickel prices on the London Metal Exchange have surged nearly 300 percent over the past three trading days.

“Our positions and operations don’t have any problems,” Tsingshan founder and Chairman Xiang Guangda told Yicai Global yesterday. “Tsingshan is an excellent Chinese enterprise.”

The LME has given more time to a subsidiary of China Construction Bank to make up a security deposit of hundreds of millions of dollars that was due on March 7 when nickel prices hit a record high, a source said yesterday. That means the unit, CCBI Global Markets, has not actually defaulted.

Many banks have business dealings with Tsingshan, with some foreign lenders having particularly high exposure, staff covering financial markets at a number of Chinese and foreign banks told Yicai Global.

Tsingshan shorted nickel to lock in profits on stainless-steel products, insiders told Yicai Global. “Tsingshan produces 3,000 tons of nickel a month, or 36,000 tons a year, but has a short position of 200,000 tons of futures contracts, which is a big mismatch,” one of the sources said.

The firm needs to increase the contract margins or roll over the futures if it decides to keep the contracts, which would require a huge amount of cash, an analyst told Yicai Global. A decision to close out the 200,000-ton short position would result in a loss of about USD8 billion, he said.

Editor: Tom Litting