Business

The tycoon runs a quarter of China’s copper trade on the wire

(Bloomberg) – From the very beginning, protecting metal-laden trains from thieves on cold winter nights, He Jinbi built a copper business so powerful that one in four tons was imported. China.

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A born businessman with an infectious sense of humour, the 57-year-old has developed Maike Metals International Ltd. through the difficult and tumultuous commodity rush of the early 2000s, to become a major conduit between China’s industrial hubs and global merchants such as Glencore Plc.

Now, Maike is in a liquidity crunch, and He’s empire is at stake. The ripple effects can be felt around the world: the company processes one million tons a year – a quarter of China’s refined copper imports – making it the biggest player in the trade route. The most important global trade for this metal and is a major trader on the London Metal Exchange.

With an extensive network of contacts that provide enviable insight into China’s factories and construction sites, He has been a descendant of China’s commodity fuel boom for more than a decade. two decades – cashing in on raw material needs and then plunging into the red- hot real estate market.

But this year, Beijing’s Covid Zero restrictions have hit the property market and copper prices hard. After months of rumors, He publicly admitted last month that Maike had asked for help with liquidity issues.

He said the problems were temporary and affected only a small portion of his business, but his trading partners and creditors were being cautious. Some Chinese domestic traders have suspended new transactions, while one of the company’s oldest lenders, ICBC Standard Bank Plc, has been concerned about them moving some coins out of China. capital that supported Maike to borrow.

Even if it can secure support from the government and state-owned banks, industry executives say Maike may struggle to maintain its dominant role in the Chinese copper market. .

While He’s rise is a microcosm of China’s economic boom, his current woes could mark a turning point for commodity markets: the end of an era where China’s demand can only grow.

“In a way, Maike’s story is the story of modern China,” said David Lilley, who started dealing with Maike in the 1990s. “He has skillfully steered the dynamics of the Chinese economy, but no one is prepared for the Covid lockdowns.”

This explanation of China’s rise to the top of the commodity industry is based on interviews with business associates, competitors and bankers, many of whom requested anonymity because of their sensitivity. feeling of the situation.

A spokesperson for Maike declined to comment for this story, but responded to earlier questions from Bloomberg on September 7: “Our company has been deeply involved in the development of the commodity industry for nearly 30 years. five. It has maintained a steady development under the witness of everyone. It will soon return to normal operations and continue to contribute to the development of the industry and the local economy.”

Copper boom

Born in 1964 in Shaanxi province, China, he first came into contact with copper when he got a job procuring industrial raw materials for a local company. As a young man, he was paid to protect bronze cargo on trains across China – this can be a frigid job on cold winter nights.

In 1993, he and some friends founded Maike in the western city of Xi’an, known as the capital of China’s first emperor and home to the iconic Terracotta Army statues. statue. The group borrowed 50,000 yuan (about $7,200) to buy and sell mechanical and electrical products. But His initial encounter with copper made an impact, and they quickly turned their focus to scrap metal, copper wire and refined copper.

With his sweet nature, grin and gentle sense of humour, he is a natural-born commodity trader whose charisma will help him build a network of friends and business relationships. widely.

As China’s economy liberalized, He used his connections to make Maike the middle man between major international traders and China’s growing throng of copper consumers.

In 15 years’ time, China will go from consuming one-tenth of the world’s copper supply to 50%, triggering a cycle of dizzying price increases for the metal used in electrical conductors in everything. , from power cables to air conditioning units.

Commodity Casino

This is a wild time when, for many, China’s commodity market is more than just a casino. Groups of traders would team up to bet together, launching ambushes against their opponents on the other side of the market. The bravest players will be nicknamed after martial arts masters in famous novels.

While many traders have come and gone in these passing years, His Holiness persisted.

“We have been in a lot of business together for over 20 years,” says Lilley. “There were times when China’s metal trade was really a wild west and he stood out for his reputation. He will always do his word well. “

He also has another trait essential for a successful commodities trader: a love of risk.

His big break came in the early days of superbikes. In May 2005, China’s metal industry gathered in Shanghai to attend the annual meeting of the Shanghai Commodity Futures Exchange. Copper prices have risen sharply, and most copper producers, fabricators, and traders think they will fall soon. Even China’s mighty State Reserve has made bearish bets.

They were shocked to hear Barclays analyst Ingrid Sternby predict that copper will hit new highs as Chinese demand outstrips supply. But she soon proved right, as prices more than doubled over the next 12 months. SRB’s loss has become a national scandal, and most Chinese traders have missed the opportunity to make money from the profit.

He is not among them. Paying close attention to the demand from his Chinese consumer network, he has built an optimistic position and made huge profits from the global price rally.

It was a pattern that he would successfully repeat over and over again over the years. His preferred strategy involves selling options – on the other hand, at a price his Chinese clients might see as a buying opportunity and on the plus side, at a price they might see as a buying opportunity. too expensive.

While he has enjoyed some trappings of success, those who have known him for many years say he is sane even as his net worth rises to a level that would make him, at peak, is a dollar billionaire.

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

Financial Flow

He’s business growth reflects the changes taking place in the Chinese business world. Despite his simple beginnings as a distributor of physical copper, he soon pioneered the growing connection between the commodity trading industry and financial markets in China.

As Maike became the country’s top copper importer, he began using the metal’s constant flow to raise capital. He could ask his end customers to pay upfront, and also borrow against the growing volumes of copper he was shipping and keeping in storage. Over the years, the link between copper and cash has become good, and the flows of China’s credit cycle have become the main driver of global markets.

He will use the money raised from his copper business to either speculate on the exchange or increasingly invest in China’s booming real estate sector. Starting around 2011, He built hotels and malls, and even his own warehouse in Shanghai’s bonded area.

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

As the state has become an ever more dominant force in China’s business world, he has focused his investments in his hometown, Xi’an, in favor of projects within the framework of the Chinese Business Initiative. The Belt and Road of Xi Jinping.

This year, however, He’s empire began to shake.

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

Dong Hao, head of the Chaos Ternary Research Institute, said Maike was one of a number of companies that dabbled in the property market during boom years. “After the drastic change in the real estate sector last year, such companies have encountered many difficulties,” he said.

Squeeze Nickel

The widespread instability of the Chinese economy has also sent copper prices down, and Maike has suffered as a result of banks’ growing wariness of China’s commodities sector. Confidence in the industry was damaged by the historic nickel squeeze in March, as well as several scandals related to the disappearance of aluminum and copper ore.

In recent weeks, Maike has started having trouble paying its copper purchases, and several international companies – including BHP Group and Chile’s Codelco – have halted sales to Maike and redirected shipping. Freight.

The future is uncertain. He met a group of Chinese banks in late August at an emergency meeting organized by the local Shaanxi government. Maike later said that banks had agreed to support it, including providing extensions to existing loans.

But its trading has largely halted as other traders grow increasingly nervous about dealing with the company. And, following Maike’s troubles, some of the biggest banks in the sector are pulling back from metal funding in China as a whole.

In China, He’s woes evokes mixed emotions. Many mourn his plight as a tragedy for China’s goods industry and a symbol of an economy increasingly dominated by state-owned companies.

Others will be less upset to see the end of a business model that elevates copper to a financial asset and sometimes sets import margins apart from fundamentals.

Simon Collins, former head of metals trading at Trafigura Group and CEO of digital exchange TradeCloud. “With the real estate market like it is, I think the music can stop.”

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