Chinese nickel king Xiang Guangda continued to short sell the metal despite billions in losses, and JP Morgan is the largest counterparty to the big short bet with US$1 billion exposure (HK$7.8 billion).

The move is a characteristic display of self-confidence from Xiang, the owner of Tsingshan Holding, and means that the nickel market could be set for more fireworks once it reopens.

In recent conversations, Xiang has told roughly 10 banks and brokers - including JP Morgan, through which Tsingshan holds its nickel position - that he still believes prices will fall and that he would like to keep his short position, sources said.

The discussions are ongoing, and it's not clear what stance Tsingshan's banks will take, they added.

The London Metal Exchange halted trading in nickel last Tuesday after prices spiked as much as 250 percent in two days, driven by brokers rushing to close out short positions after holders of bearish bets including Tsingshan struggled to make margin calls.

The LME said it would start a process to try to close out short positions by matching market participants with long and short positions before the market reopened, to reduce the risk that this week's squeeze is repeated when trading resumes.

About 50,000 tonnes of Xiang's total nickel short position of over 150,000 tonnes is held through an over-the-counter position with JP Morgan, which means Tsingshan owed the bank about US$1 billion in margin, sources said.

Tsingshan's difficulties paying its margin calls have put its banks and brokers in a bind, as they have had to make hefty margin calls of their own at the LME to cover their short positions on the exchange. If Tsingshan walks away from its commitments, banks stand to lose billions of dollars.

If Xiang holds on to his short position, as he has told his banks he wants to, and nickel prices go down once the LME reopens, the amount of money he owes his banks and brokers would also drop sharply.

Nickel king short sells with losses