Glencore faces setback to copper sales into China

Mining group Glencore is facing disruptions at its biggest partner for selling refined copper in the Chinese market as Maike Metals International, a powerful trading house, grapples with a liquidity crunch.

China’s slowing economy and falling property market have caught up with several domestic trading houses, leading to a series of recent scandals, including the lack of copper in warehouses.

Glencore was selling around 600,000 tonnes a year of high-purity copper to China through Maike, before the Xi’an-based trading group ran into liquidity constraints, according to people familiar with the matter. That level is equivalent to one-fifth of Glencore’s copper metal and concentrates sales last year, according to its annual report.

Glencore’s sales volumes via Maike had recently been reduced, one of the people added.

Maike was Glencore’s largest local middleman to market refined copper used in everything from electrical wiring to cabling, accounting for 80% of its sales volumes in the country.

But Maike ran into trouble earlier this year, and its founder He Jinbi admitted last month that he was facing cash flow problems. Last week he told the Financial Times that Maike was selling assets and looking at wider restructuring to survive the crisis. He also works with creditors who have agreed to extend existing loans.

Maike, founded by He in 1993, has become one of the most important bridges between major international trading houses and Chinese consumers with revenues of 160 billion Rmb ($22.6 billion) in 2021.

The trading house used imported metal to raise funds from banks with typically 90 days to repay, which it then invested in China’s property sector, traders said. The company had real estate investments of 6.65 billion Rmb, or about 60% of its illiquid assets, at the end of 2020, according to a report by China Lianhe Credit Rating, a Beijing-based rating agency.

Now that China’s real estate sector has slowed, Maike is burdened with bad debts that he is struggling to repay to creditors. The most important were the Xi’an branches of the Bank of Beijing and the Industrial and Commercial Bank of China, according to company filings for mid-2021.

By the end of June 2021, lenders had extended lines of credit of around Rmb 10.6 billion to Maike, of which he had used Rmb 9.6 billion, according to company filings. He also had three bonds worth an exceptional Rmb 3.3 billion, according to data provider Wind Information. He said in the last interview that the company still has an outstanding bank debt of around Rmb 7 billion.

London-based ICBC Standard Bank has moved some copper stocks out of China that served as collateral for its loans to Maike, according to two people familiar with the matter. JPMorgan, another of its financiers, has liquidated inventory in bonded warehouses at ports in China, they added.

Foreign lenders have grown increasingly nervous about financing China’s commodity trade after a series of problems at trading houses.

The credit crunch has made it more difficult to obtain physical copper in China, and copper inventories in Shanghai are near their lowest level in a decade.

Other major copper miners, including the world’s biggest mining group BHP and Chile’s Codelco, have also suspended sales to Maike as it works to resolve its liquidity issues, according to commodity trading officials. .

Foreign groups such as Glencore, Mitsui, Trafigura, Codelco and Aurubis supplied 30% of Maike’s annual imports in 2020, according to China Lianhe Credit Rating. A person familiar with the matter said Trafigura had done no business with Maike this year.

Glencore, BHP and JPMorgan declined to comment. ICBC Standard and Codelco did not respond to requests for comment.

Maike’s He said the group was actively selling fixed assets and shares to replenish cash and reduce debt, using the phrase “breaking guns to survive” – ​​meaning sacrificing parts of the business in order to save it.

Commodity traders expect public companies to provide lines of funding to guide the company through the liquidity crunch. Maike’s He told the FT the group was discussing an investment with state-owned groups in the central city of Xi’an, but did not reveal details.

In August, Maike set up a joint venture with a local government funding vehicle backed by the city of Xianyang in Shaanxi province.

A copper trader at a state-owned futures company said an affiliated company in Shaanxi province is considering a stake purchase and cash injection into the business because it is so vital to the local economy.

Asked about Maike’s heavy reliance on short-term funding using metals as collateral, he said: “The entire private sector has faced many liquidity challenges this year, and we are no exception.”

A seasoned copper trader said: “It coincides with the question of whether they are politically too big to fail for the province. I hope they can’t come back. These guys are the latest in a dying breed of Chinese traders who use imported copper to raise funds.

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