Rebirth 1980: Marrying my sister’s best friend at the beginning

After deducing that Sheffield United Steel Company had sold a large number of short orders to cash out, Li Yi did not act in a hurry, but continued to have people investigate the situation of other steel companies.

Do not check, I don’t know, I’m scared.

It turns out that there is not just one Sheffield company selling short orders, almost all steel companies in the entire London Metal Exchange Market, no, it should be all metal companies are doing this.

However, although some companies sell short orders to cash out, they are still reasonable. The short orders they sell are similar to their own production capacity.

Even if such a company encounters a long squeeze, most of them can get through it safely and the losses will not be too great.

However, the amount of short orders sold by Sheffield Company was so large that it completely exceeded their production capacity. Li Yi even believed that they had never thought about physical delivery from the beginning.

Because, Li Yi asked someone to check the transactions of Sheffield United Steel Company in recent years. He was surprised to find that every once in a while, Sheffield Steel Company would use their dominant position in the British Isles steel industry to manipulate the steel industry. s price.

The gameplay is as it is now. First, we look for opportunities for steel prices to rise and sell a large number of futures contracts to cash out.

When the market becomes saturated, not only will they not stop, but when the price of steel drops slightly, they will sell more contracts again to directly push the price of steel to the floor price.

After the price of the futures contract is completely brought down, they will then recycle the contract to ensure that there is enough spot for delivery.

In the past few years, they have easily made billions of pounds using this method.

Therefore, the current Sheffield United Steel Company is still nominally the largest steel production company in the British Isles, but in fact they are transforming into a financial company.

Because of this, they did not pay attention to the company's production capacity. They even shut down three blast furnaces in a row when steel prices were extremely low the year before last, directly reducing the company's production capacity by one-third.

After all, who would be willing to work hard in production when you can just make money in the financial market?
If you really need it, you can just buy it from other steel companies.

But what they don't know is that any loophole in the financial market may lead the company to fall into an abyss of destruction.

Li Yi saw too many large companies like Sheffield that played with fire and eventually got burned. In his previous life, Li Yi saw too many companies, both domestic and foreign.

For example, Zhuzhou Metallurgical Company, a well-known domestic company, also conducted overdraft transactions on the London Metal Exchange and short-sold zinc futures contracts in large quantities. Their positions far exceeded the established futures trading plan.

Zhuye Company did not know at the time that from the moment they started short selling, he had been targeted by internationally renowned futures traders, who joined forces with other institutions to conduct a comprehensive "short squeeze" on Zhuye Company.

Before the incident came to light, Zhuye had already sold 80 tons of zinc on the market, and at that time, Zhuye's total annual output was only 30 tons.

After the incident, although the state took full action, it took measures such as position stop loss, margin call, and reasonable period adjustment to deal with the position urgently. At the same time, it mobilized supply sources from other zinc plants and organized delivery through various channels, striving to minimize losses.

However, due to the excessive selling position, the company had to buy some contracts at a high price to close out the contracts. As a result, Zhuye suffered a loss of US$3 million, equivalent to RMB 1.76 billion, within the last three days of concentrated liquidation.

Another example is China Aviation Oil in 2004, State Reserve Copper in 2005, China United Oil in 2018, and Tsingshan Nickel in 2022.
The market capitalization of any of these companies is no smaller than that of Sheffield Steel Company, but they are still attacked by capital giants in the futures market, and almost no one escapes unscathed!
Sheffield Steel Company has been completely trapped. It is almost impossible to make a comeback, even if the government intervenes!

But now Li Yi can't force a position, because long positions require conditions.

The first is that the position contract needs to expire, the second is to make sure that the other party has no way to deliver the goods physically, and the last is that you need to have enough margin.

Because only when the position contract expires can you apply for a sale contract or physical delivery, if the other party has sufficient steel reserves, then the forced position will not succeed.

Furthermore, when choosing physical delivery, the exchange will require the long side to add margin.

After all, most of today's futures contracts use leveraged funds, often requiring only 10% to 20% margin, which is equivalent to just paying a deposit.

If you choose to sell the contract, that doesn't matter.But if you want physical delivery, you have to add additional funds, otherwise you will get goods worth several times the value for a fraction of the funds, which is impossible.

In addition, a forced position also requires an opportunity!
Soon, the first opportunity appeared.

In late April, the British navy successfully arrived in the Falklands waters, and soon had a fierce battle with the Argentine navy.

On April 4, the Argentine Navy submarine Santa Fe was discovered by the helicopter of the USS Anchun and attacked with depth charges, causing it to run aground and lose its combat capability.

The crew of the Santa Fe then relied on the submarine's remaining power to drive it to a breakwater near South Georgia Island and ran aground. Then they landed and surrendered to the British forces, who then regained control of South Georgia Island.

While taking back South Georgia Island, the British commander on the front line immediately sent a good news to London: "Warning: Her Majesty the Queen, the military flag has been flying in the sky of South Georgia along with the national flag. God save the Queen."

The Prime Minister Iron Lady immediately released the good news to the media and vividly said that she "celebrates with the world".
When the good news came, the entire British Isles instantly boiled, but the atmosphere in the stock market and futures market became a little subtle.

Because the smoother the troops on the front line fight, the sooner the war is likely to end. Once the war ends early, the price of metals will inevitably fall.

Affected by this, some retail investors holding contracts became a little unable to sit still, and immediately began to sell the contracts in their hands to cash out.

In just one day, the prices of various metals in the London futures market plummeted by 8%.

However, because the big consortium has not moved, the price has not yet gotten out of control.

But the good news on the front line came one after another. First, the Argentine Air Force tried to deal with the British Navy's aircraft carrier, but ultimately failed. On the contrary, the British Navy successfully completed the blockade of the Tsushima Islands.

At this point, the Afghan army on the Falklands became a lonely army and basically lost contact with the mainland.

Immediately afterwards on May 5, the Argentine Navy's cruiser General Belgrano sailed into the warring waters and was surrounded and pursued by British submarines. Finally, the cruiser General Belgrano was sunk at home, causing 2 Argentine crew members died.

As a series of good news came, everyone believed that Argentina was at the end of its war effort and the war would soon come to an end.

Therefore, the London metal market ushered in a second wave of cashing out. This time, some institutions also followed suit and sold contracts, and the prices of various metals continued to fall.

At this time, a large number of steel short orders suddenly appeared in the market, and the large number shocked everyone.

Everyone thought that a large investor was cashing out, and soon some people lost their temper and sold their contracts one after another.

In just a few days, prices for various metals continued to drift lower on the London futures market.

Especially for steel, in early May, the futures price of steel was 5 pounds per lot, equivalent to 7236 pounds per ton.

But in just nine days, by May 9, the price had dropped to 5 pounds per ton.

Let’s not say it’s a floor price, but at least many institutions that have entered the market have begun to lose money.

After investigation, Li Yi found that most of the short orders that appeared this time were dug out by Sheffield Steel Company. They were repeating their old tricks and were preparing to smash the market and harvest the long positions.

As long as the price of steel is hit low enough and Sheffield Company buys back the short orders, they don't have to deliver the physical goods, and the price difference is pure profit!

Seeing that the time was almost up, Li Yi took action
(End of this chapter)