(Bloomberg) — From a start guarding trains full of metal from thieves on freezing winter nights, He Jinbi built a copper trading house so powerful it handles one in every four tons imported into China.
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A born businessman with an infectious sense of humor, the 57-year-old grew Maike Metals International Ltd. through the commodity crash and crash of the early 2000s, to become a key conduit between China’s industrial hubs and global traders as it is now. Glencore Plc.
Now Maike is suffering from a liquidity crisis and He’s empire is under threat. The ripple effects could be felt around the world: the company handles one million tonnes a year, a quarter of China’s refined copper imports, making it a major player in the world’s most important trade route for metal and an important merchant in London. Exchange of metals.
With his vast network of contacts offering enviable insight into China’s factories and construction sites, he has been the poster child of China’s commodity boom for two decades, making a fortune from his voracious demand for raw materials and 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 copper prices hard. After months of rumours, he publicly admitted last month that Maike had asked for help to solve liquidity problems.
He said the problems are temporary and only affect a small part of his business, but his trading counterparts and creditors are being cautious. Some domestic Chinese traders have suspended new deals, while one of the company’s oldest lenders, ICBC Standard Bank Plc, was concerned enough to move some of the copper out of China that had backed its loans to Maike.
Even if it can get support from the government and state-owned banks, industry executives say Maike may struggle to maintain its dominant role in the Chinese copper market.
As much as He’s rise was a microcosm of China’s economic boom, its current troubles may mark a turning point for commodity markets: the end of an era in which Chinese demand could only to increase.
“In a way, Maike’s story is the story of modern China,” said David Lilley, who began dealing with Maike in the 1990s, first as a trader at MG Plc and later as co-founder of trading house and hedge fund Red Kite. “He has skillfully piloted 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 because of the sensitivity of the situation.
A spokesman for Maike declined to comment for this story, but said in response to earlier questions from Bloomberg on Sept. 7: “Our company has been deeply involved in the development of the commodity industry for nearly 30 years. It had continued steady development as all attest. It will soon resume normal operations and continue to contribute to the development of industry and the local economy.”
Copper Boom
Born in 1964 in the Chinese province of Shaanxi, his first encounter with copper came when he got a job sourcing industrial materials for a local company. As a young man, he was paid to guard loads of copper on trains crossing China, which could be a cold job 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 their first encounter with copper had made an impact and they quickly turned their attention to scrap, copper wire and refined copper.
With a pleasant nature, a broad smile and a lighthearted sense of humor, he was a natural commodity trader whose charisma would help him build a wide network of friends and business contacts.
As China’s economy liberalized, he used his connections to make Maike an intermediary between major international traders and China’s growing multitude of copper consumers.
In the space of 15 years, China would go from consuming one-tenth of the world’s copper supply to 50%, triggering a supercycle in soaring prices for the metal used in electrical cables in everything from power cables to to air conditioning units.
Casino of basic products
This was a wild time when, for many, China’s commodity markets were little more than a casino. Groups of traders would band together to bet together, ambushing their opponents across the market. The bravest players would be nicknamed the martial arts masters of popular novels.
While many merchants came and went in these years of march, He persisted.
“We’ve done a lot of business together over twenty years,” Lilley said. “There were times when the Chinese metals trade was a true wild west and he was noted for his honor. He would always keep his word.”
He also had another characteristic essential to a successful commodity trader: an appetite for risk.
His big break came in the early days of the supercycle. In May 2005, China’s metals industry gathered in Shanghai for the annual conference of the Shanghai Futures Exchange. Copper prices had risen sharply, and most producers, manufacturers and traders in the audience thought they would soon drop. Even the powerful State Reserve Bureau of China had made low bets.
They were surprised to hear Barclays analyst Ingrid Sternby predict that copper would hit new highs as Chinese demand outstripped supply. But he was soon proved right, as prices doubled in the next 12 months. The SRB’s losses became a national scandal, and most Chinese traders missed the opportunity to profit from the gains.
He was not among them. Paying close attention to demand from its Chinese consumer network, it had acquired a bullish position and benefited greatly from the overall rise in prices.
It was a pattern he would repeat with success many times over the years. His preferred strategy was to sell options: down, at a price his Chinese clients might see as a buying opportunity, and up, at a price they would likely consider too expensive.
Although he enjoyed some of the trappings of success, people who have known him for many years say he remained grounded even as his net worth rose to levels that probably they turned, at their peak, into a billionaire.
In Shanghai, he regularly dined at a restaurant serving Xi’an cuisine, where he ate his favorite cold steamed noodles and fried leek balls for 50 yuan ($7).
Financial flows
The evolution of He’s business reflected the changes taking place in the Chinese business world. Although he had started as a physical copper dealer, he soon pioneered the growing interconnections between the commodities business and financial markets in China.
As Maike became the country’s leading importer of copper, it began to use the steady flow of metal to obtain financing. He could demand advance payments from his end customers and also borrow against the ever-increasing volumes of copper he shipped and kept in warehouses. Over the years, the connection between copper and cash solidified, and the ebbs and flows of China’s credit cycle became 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. Starting in 2011, it built hotels and business centers, and even its own warehouses in Shanghai’s service area.
“In a way, Maike’s story is the story of modern China”
As the state became an increasingly dominant force in China’s business world, it focused on investing in its hometown of Xi’an, supporting projects under the Belt and Road Initiative and the Xi Jinping Route.
This year, however, his empire began to falter.
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 He’s real estate investments. Its hotels were nearly empty for months, and some commercial tenants simply stopped paying their rent.
Maike was one of a number of companies that threw their fortunes into the real estate market during the boom years, said Dong Hao, head of the Chaos Ternary Research Institute. “After the sharp turnaround in the real estate sector last year, these companies have encountered several difficulties,” he said.
Nickel Squeeze
The broader malaise in the Chinese economy has also caused the price of copper to fall, while at the same time, Maike suffered as a result of banks’ growing caution towards China’s commodities sector. Confidence in the industry was affected by the historic pressure of nickel in March, as well as several scandals related to the lack of aluminum and copper ores.
In recent weeks, Maike began to experience difficulties paying for its copper purchases, and several international companies, including BHP Group and Chile’s Codelco, halted 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 organized by the local government of Shaanxi. Maike later said banks had agreed to support it, even offering extensions on existing loans.
But its 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 industry’s biggest banks are pulling back from metals financing in China in general.
Inside China, He’s troubles are causing mixed emotions. Many lament their plight as tragic for China’s raw materials industry and emblematic of an economy increasingly dominated by state-owned enterprises.
Others would be less sad to see the end of a business model that elevated copper as a financial asset and sometimes caused import margins to diverge from physical fundamentals.
“For many years, traders like Maike have been quite important in the import of copper into China – they have bought very consistently to keep the funding flowing,” said Simon Collins, former head of metals trading at Trafigura Group and the CEO of digital trading platform TradeCloud. “With the real estate market the way it is, I think the music might be stopping.”
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