London Futures Market. Super VIP Room!
Dawson listened with a furrowed brow as Smith reported the situation. When he learned that Li Yi’s people were secretly dumping copper and aluminum futures contracts, he was completely stunned.
“Smith, are you certain it’s them selling the futures contracts? You didn’t misread the data, did you?”
“Mr. Dolsen, the woman in charge at Star Company is the one placing the orders. She’s plump and petite—very easy to spot. I’m certain of it!” Smith said with absolute confidence.
“That’s impossible. Where did they get the contracts… I mean, when did they enter the market?” Dolsen snapped.
“Well…”
No wonder Dolsen was so shocked. Ever since Li Yi arrived in London, his men had been secretly monitoring the guy.
But what he hadn’t expected was that, over the past month or so, the man hadn’t set foot in either the stock or futures markets even once.
His chubby manager had brought people along a few times, but each time they’d only come to look around—they hadn’t made any trades or contacted any brokers.
So, Dolsen and his team had always assumed Li Yi was biding his time, waiting for the right opportunity to enter the market.
When Li Yi appeared at the futures market today, he assumed the man had finally spotted a business opportunity and was ready to make his move.
At the same time, Dolsen was preparing to pool his funds to target Li Yi. He had been on a roll lately, raking in nearly 800 million pounds in just a month—a whopping 13.6 billion Hong Kong dollars.
He was now brimming with confidence, having completely shaken off his previous slump.
In short, Dolsen felt he was back on top!
Moreover, he was confident that on his home turf, Li Yi had no chance of outmaneuvering him.
However, what he never could have imagined was that Li Yi wasn’t there to enter the market today—he was cashing out… exiting!
It was then that Dolsen finally figured it out: Li Yi hadn’t been sightseeing all this time just biding his time—he’d actually quietly entered the market long ago, and Dolsen hadn’t even known it.
“Crack!”
An elegant coffee cup was smashed violently onto the floor, shattering into a thousand pieces in an instant.
It took a long while before Dolsen managed to suppress his rage. He then turned to an elderly man standing beside him and said, “Third Uncle, find out when this Chinese businessman acquired the copper and aluminum contracts. Also, check what else he’s invested in besides copper and aluminum.”
The elderly man nodded and immediately picked up the phone beside him to make a call!
At that moment, a beautiful blonde woman standing beside Dowson spoke up: “Young Master Dowson, what should we do now? Should we try to drive down the price of copper and aluminum?”
“No need. You don’t understand that guy. Once he decides to cash out and exit the market, it means the prices for copper and aluminum have basically peaked. There’s no point in us entering the market now to try to undercut them!”
Dawson then added, “Tina, you’ve been investing in the futures market for years and have a wider network than I do. Keep an eye on this group for me. I have a feeling something big is about to happen!”
Although Tina didn’t understand why Dolsen placed such importance on these Easterners, she always obeyed her master’s orders without question. She nodded immediately and said, “Yes, Master. I promise that not a single move they make in the futures market will escape our notice!”
“Very good…”
Meanwhile, Li Yi had no idea he was already under Dolsons watch. He was still in the VIP lounge, reading the newspaper and waiting for news.
Of course, given his personality, he wouldn’t have cared even if he had known.
After all, they were already cashing out and exiting the market; one could say the outcome was already decided.
Never mind a mere Dolsen—even if the family behind him stepped in personally, it wouldn’t do them any good.
……..
Two days later!
Over the course of two full days, Pang Feiyan, Liang He, and their team successfully sold off all 120,000 copper futures contracts and 179,000 aluminum contracts.
According to calculations, their average purchase price for copper was 1,578 pounds per ton, and the average selling price was 1,840 pounds per ton, resulting in a profit of 786 million pounds.
The purchase price for aluminum was 1,167 pounds per ton, and the average selling price was 1,380 pounds per ton, yielding a profit of 954 million pounds.
In other words, from their investments in copper and aluminum alone, they made a pre-tax profit of 1.74 billion pounds.
At the same time, Zhang Qiusheng and his team submitted an application for physical delivery to the exchange, demanding that three short sellers—including Sheffield United Steel Company—deliver 12.8 million tons of steel.
At this point, Li Yi’s squeeze battle had taken its second step!
According to his estimates, the first phase of the squeeze would involve at least four steps.
In addition to the first step of recouping funds and the second step of applying for physical delivery, the process would still require at least two more steps: margin calls and either contract buybacks or physical delivery!
Sure enough, shortly after the spot delivery request was submitted, representatives from Sheffield United Steel Company approached Li Yi and his team, hoping to redeem their short contracts at current market prices.
This is standard practice in the futures market: when short sellers lack sufficient physical goods for delivery, they have no choice but to buy back the contracts at market price or at a premium.
However, much to the frustration of Sheffield United Steel, Li Yi—who held the largest position—resolutely rejected their offer. Even when they offered a 5% premium, he refused, insisting on physical delivery.
Suddenly, the pressure shifted entirely to Sheffield United Steel!
Upon learning that the long side insisted on physical delivery, Sheffield United Steel Company immediately began to feel the heat.
After all, their contracts maturing in late May totaled over 15 million tons, yet the company’s physical inventory stood at just over 7 million tons.
In other words, if all the long positions demanded physical delivery, they would face a shortfall of at least 8 million tons of steel.
Fortunately, the company had already contacted some institutions and retail investors, who had agreed to allow them to redeem the contracts at current market prices.
The problem, however, was that while these institutions and retail investors were numerous, the contracts they held amounted to a mere 2 million tons or so, while the remaining 12 million tons were in Li Yi’s hands.
Knowing that the other side was determined to demand physical delivery, Sheffield Company had no choice but to scramble to source steel while simultaneously contacting the institutions, requesting that they require the long positions to post additional margin—and, in an unprecedented move, raising the margin call rate to 30%.
It is important to note that margin calls in the futures market generally occur under two circumstances: one is when an investor incurs significant losses, and brokers or financing institutions, concerned about capital risks, require the investor to post additional margin.
The other is when physical delivery is involved; short sellers, concerned about settlement issues with the goods, demand additional margin. Sheffield Company fell into the latter category.
However, margin calls of this nature usually do not exceed 20%, and typically amount to only 10%.
Now they are demanding that Li Yi immediately top up 30% of the margin—which is, to put it mildly, an unreasonable demand, bordering on unfair.
But there’s nothing to be done about it. This is London, and as the most important partner in the futures market, the exchange has actually agreed without hesitation to the unreasonable demands put forth by Sheffield Steel.
You have to admit, playing on home turf gives you a “damn” big advantage!
Soon, Li Yi and his team received a notice from the brokerage: Given the enormous value of the contracts maturing this time, the exchange was requiring Li Yi’s side to post a margin equal to 30% of the total contract value, with a deadline of three days.
If the margin wasn’t deposited within three days, their contracts would be forcibly liquidated by the exchange and re-entered into the market.
The people at Sheffield United Steel were also taking a gamble. After all, Li Yi and his team held 12.8 million expiring contracts with a total value of over 4 billion pounds; a 30% margin requirement amounted to 1.213 billion pounds.
In other words, Li Yi and his team would need to raise 1.213 billion pounds within three days before the institution would arrange for the short sellers to make physical delivery.
1.2 billion pounds is no small sum, and Sheffield United Steel was betting that Li Yi and his team could not possibly come up with 1.2 billion pounds in the short term.
But Li Yi, who had already laid a trap, was not about to let them have their way. When he set the trap, he had anticipated all of Sheffield Company’s backup plans—including the margin call.
Immediately afterward, Li Yi ordered his team to deposit the 30% margin.
When the news reached them, the executives at Sheffield Company were instantly dumbfounded…
……….