Tycoon running a quarter of China’s copper trade suffers liquidity crisis

After beginning to protect metal-filled trains from thieves on freezing winter nights, He Jinbi built a copper trading house so powerful that it processes one in every four tons imported into China.

A born trader with an infectious sense of humor, the 57-year-old grew Maike Metals International Ltd. through the raw materials rush in the early 2000s, to become a key intermediary between China’s industrial heartland and global merchants like Glencore Plc.

Now Maike is suffering from a cash crunch and He’s empire is under threat. The ripple effects could be felt around the world: the company handles a million tonnes a year, or a quarter of China’s refined copper imports, making it the biggest player on the most important route world trader for the metal, and a major trader on the London route. Metal exchange.

With his vast network of contacts giving an enviable insight into China’s factories and construction sites, he was the poster child of China’s commodity-fueled boom for two decades, making a fortune from his demand. voracious of raw materials, then plunging it into the red. hot real estate market.

But this year, Beijing’s restrictive Covid Zero policies have hit both the real estate market and the price of copper hard. After months of rumours, he publicly admitted last month that Maike had asked for help with liquidity issues.

He said the problems were temporary and only affected a small part of his business, but his trade counterparties and creditors were cautious. Some domestic Chinese traders suspended new transactions, while one of the company’s oldest lenders, ICBC Standard Bank Plc, was sufficiently concerned that it moved copper out of China that had backed its loans. in Mayke.

Even if he can get support from the government and state banks, industry executives say Maike could struggle to maintain his dominant role in China’s copper market.

Although its rise was a microcosm of China’s economic boom, its current woes could mark a turning point for commodity markets: the end of an era in which Chinese demand could only rise.

“In a way, Maike’s story is the story of modern China,” said David Lilley, who started dealing with Maike in the 1990s, first as a trader at MG Plc, then as co-founder of trading house and hedge fund Red Kite. “He skilfully surfed the dynamics of the Chinese economy, but no one was prepared for the Covid lockdowns.”

This account of He’s rise to the top of China’s commodities industry is based on interviews with business associates, rivals and bankers, many of whom asked not to be named due to the sensitivity of the situation.

A spokesperson for Maike declined to comment for this story, but said in response to previous questions from Bloomberg on Sept. 7: “Our company has been deeply involved in the development of the commodities industry for nearly 30 years. He had maintained a steady development as everyone testifies. It will soon resume its normal activities and continue to contribute to the development of industry and the local economy.

copper arrow

Born in 1964 in China’s Shaanxi Province, he first encountered copper when he got a job sourcing industrial materials for a local company. As a young man, he was paid to guard copper shipments on trains criss-crossing China, which could be cold work on freezing winter nights.

In 1993, he and several friends established Maike in the western city of Xi’an, known as the capital of China’s first emperor and the location of the iconic Terracotta Army statues. The group took out a loan of 50,000 yuan (about $7,200) to buy and sell mechanical and electrical products. But He’s first encounter with copper had an impact, and they quickly focused on scrap metal, copper wire, and refined copper.

With a pleasant nature, a broad smile, and a light-hearted sense of humor, he was a natural commodity trader whose charisma would help him build a large network of friends and business contacts.

As the Chinese economy liberalized, he used his connections to make Maike an intermediary between major international traders and the growing crowd of copper consumers in China.

Within 15 years, China would go from a tenth of the world’s copper supply to 50%, triggering a skyrocketing price super cycle for the metal used in electrical wires, from power cables to air conditioning units. .

Commodity Casino

It was a crazy time when, for many, China’s commodity markets were little more than a casino. Groups of traders team up to bet together, launching ambushes against their opponents on the other side of the market. The bravest players would be nicknamed after martial arts masters from popular novels.

While many traders came and went during those boom years, he persisted.

“We did a tremendous amount of business together for 20 years,” Lilley said. “There were times when the Chinese metals trade was a real Wild West and it stood out for its honor. It would always keep its word.”

He also had another essential characteristic for a successful commodities trader: an appetite for risk.

Its big break came in the early days of the supercycle. In May 2005, the Chinese metals industry gathered in Shanghai for the annual conference of the Shanghai Futures Exchange. Copper prices had risen sharply and most of the producers, fabricators and traders present thought they would soon fall. Even China’s powerful State Reserve Bureau had made bearish bets.

They were shocked to hear Barclays analyst Ingrid Sternby predict copper would hit new highs as Chinese demand outstripped supply. But she was soon proven right, as prices more than doubled over the next 12 months. The SRB’s losses became a national scandal and most Chinese traders missed the opportunity to take advantage of the gains.

He was not among them. Paying close attention to demand from his network of Chinese consumers, he had built up a bullish position and profited generously from soaring global prices.

It was a pattern he would successfully repeat many times over the years. His preferred strategy was to sell options – down, at a price his Chinese clients were likely to consider a buying opportunity, and up, at a price they were likely to consider too expensive.

Although he enjoyed some of the trappings of success, people who have known him for many years say he remained down-to-earth even as his net worth soared to levels that likely made him, at his heyday, a dollar billionaire.

In Shanghai, he regularly lunched at a restaurant serving Xi’an cuisine, where he ate his favorite cold steamed noodles and fried leek dumplings for 50 yuan ($7).

Financial flows

The development of He’s business reflected the changes taking place in the Chinese business world. Although it started simply as a distributor of physical copper, it soon pioneered the growing interconnections between commodity trading and financial markets in China.

As Maike became the country’s top copper importer, he began to use the constant flow of metal to raise funds. It could request down payments from its end customers and also borrow against the increasingly large volumes of copper it shipped and kept in warehouses. Over the years, the link between copper and cash has become well established, and the ebbs and flows of China’s credit cycle have become a key driver of the global market.

He would use the money raised from his copper business to speculate on the exchange or, increasingly, invest in China’s booming real estate sector. From around 2011, it built hotels and business centers, and even its own warehouses in Shanghai’s bonded area.

“In a way, Maike’s story is the story of modern China.”

As the state became an increasingly dominant force in Chinese business, he focused on investing in his hometown of Xi’an, supporting projects under the Belt Initiative. and Xi Jinping Road.

This year, however, his empire began to falter.

Xi’an city faced a month-long lockdown in December and January, and further restrictions in April and July as Covid re-emerged, hurting He’s property investments. Its hotels sat nearly empty for months, and some commercial tenants simply stopped paying rent.

Maike was one of many companies that dipped its fortunes into the real estate market during the boom years, said Dong Hao, director of the Chaos Ternary Research Institute. “After the sharp real estate recovery last year, these companies faced various challenges,” he said.

nickel brush

The general malaise in the Chinese economy also caused the price of copper to fall, while Maike suffered at the same time the result of banks’ increasing caution towards the commodities sector in China. Confidence in the industry was hit by the historic nickel squeeze in March, as well as several scandals involving missing aluminum and copper ores.

In recent weeks, Maike has begun to experience difficulty paying for its copper purchases, and several international companies, including BHP Group and Chile’s Codelco, have suspended sales to Maike and diverted shipments.

The future is uncertain. He met with a group of Chinese banks in late August at a critical meeting hosted by the Shaanxi local government. Maike later said banks had agreed to support him, including offering extensions on existing loans.

But his trading activity has largely ground to a halt as other traders grow increasingly nervous about dealing with the company. And, in the wake of Maike’s troubles, some of the biggest banks in the sector are more generally withdrawing from metals financing in China.

In China, his misfortunes arouse mixed emotions. Many mourn his situation as tragic for China’s commodities industry and emblematic of an economy increasingly dominated by state-owned enterprises.

Others would be less sad to see the end of an economic model that made copper a financial asset and sometimes caused import margins to diverge from physical fundamentals.

“For many years traders like Maike have been very important in bringing copper into China. They have been buying very steadily to keep the flow of funding going,” said Simon Collins, the former head of the metals trader at Trafigura Group and CEO of digital trading platform TradeCloud. “With the real estate market as it is, I think the music might stop.”

With help from Winnie Zhu/Bloomberg

Picture credits: Jerome Favre/Bloomberg

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