(Bloomberg) — From a start protecting 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 trader born with an infectious sense of humor, the 57-year-old Maike Metals International Ltd. grew. through the rough-and-tumble rush for commodities in the early 2000s, becoming a central conduit between China’s industrial heartlands and global merchants like. Glencore Plc.
Now Maike is experiencing a liquidity crisis, and his empire is under threat. The ripple effects could be felt around the world: the company handles a million tonnes a year – a quarter of China’s refined copper imports – making it the biggest player on the global trade route most important for the metal, and a great trader on the London. Metal Exchange.
With his wide network of contacts giving him enviable insight into China’s factories and construction sites, he has been the poster child for China’s commodity boom over the past two decades – cashing in on wild demand for raw materials and then plunging it into the red. . hot property market.
But this year, the property market and the copper price have been hit hard by Beijing’s restrictive Covid Zero policies. After months of rumours, he publicly admitted last month that Maike had asked for help to resolve liquidity issues.
He said the problems are temporary and only affect a small part of his business, but his trading partners and creditors are on alert. Some domestic Chinese traders have suspended new deals, and one of the company’s longest-standing lenders, ICBC Standard Bank Plc, was so concerned that it moved some copper out of China that had been backing its loan to Maike.
Even if it can get support from the government and state banks, industry executives say Maike may struggle to maintain its dominant role in China’s copper market.
As much as He’s rise has been a microcosm of China’s economic boom, his current woes could be a turning point for commodity markets: the end of an era in which Chinese demand could rise.
“In some ways the story of Maike 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 skillfully marked the dynamics of the Chinese economy, but no one was prepared for the Covid lockdown.”
This account of He’s rise to the pinnacle of China’s commodity industry is based on interviews with business partners, competitors and bankers, many of whom asked not to be named due to 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 September 7: “Our company has been heavily involved in the development of the commodity industry for nearly 30 years. It fostered a steady development as everyone saw. Normal operations will resume soon and will continue to contribute to the development of industry and the local economy.”
Born in 1964 in China’s Shaanxi Province, he first encountered copper when he got a job supplying industrial materials to a local firm. As a young man, he was paid to guard copper cargoes on trains crossing China — which could be a cold job on freezing 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 the location of the iconic Terracotta Army statue. The group took a loan of 50,000 yuan (about $7,200) to buy and sell mechanical and electrical products. But he was influenced by his early contact with copper, and they quickly shifted their focus to scrap metal, copper wire and refined copper.
With a personable nature, a broad grin and a light-hearted 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 a middle man between major international traders and the growing number of copper consumers in China.
In the 15-year period, China would go from consuming a tenth of the world’s copper supply to 50%, which caused a supercycle of skyrocketing prices for the metal used in electrical wires in everything from power cables to air conditioning units.
This was a wild era when China’s commodity markets were little more than a casino. Groups of traders would come together to make bets, launching ambushes against their counterparts on the other side of the market. The bravest players would be nicknamed after the martial art masters of popular novels.
Although many traders came and went in these early years, he remained.
“We’ve done a lot of business together over twenty years,” Lilley said. “There were times when China’s metals trade was a real wild west and stood out from its honor. He would always make good on his word.”
He also possessed another essential characteristic of a successful commodity trader: an appetite for risk.
His big break came in the early days of the superbike. In May 2005, the Chinese metals industry gathered in Shanghai for the annual Shanghai Futures Exchange conference. Copper prices had risen sharply, and most of the producers, manufacturers and traders in the audience thought they would soon fall. Even China’s powerful State Reserve Bureau had made bearish bets.
They were surprised to hear Barclays analyst Ingrid Sternby predict that copper would hit new highs as Chinese demand outstripped supply. But she was soon proven right, as prices more than doubled in the next 12 months. The SRB’s losses became a national scandal, and most Chinese traders missed the opportunity to cash in on the gains.
He was not among them. Paying close attention to demand from its Chinese consumer network, it had taken a bullish stance and profited handsomely from the rise in global prices.
It was a pattern that would repeat itself many times over the years. His preferred strategy involved selling options – on the downside, at a price that his Chinese customers would likely see as a buying opportunity, and on the other side, at a price that would be considered too much – dear.
Although he enjoyed some of the trappings of success, those who knew him for years say he remained down-to-earth even as his net worth rose to levels that made him a billionaire at his peak. .
In Shanghai, he would regularly have lunch at a restaurant serving cuisine from Xi’an, where he would eat his favorite cold steamed noodles and fried leek dumplings for 50 yuan ($7).
The evolution of He’s business was a reflection of the changes taking place in the Chinese business world. Although it had started simply as a physical copper distributor, it soon became a leader in the growing interconnections between the commodity business and the financial markets in China.
As Maike grew to become the country’s leading copper importer, he began using the constant flow of metal to raise funding. He could request advance payments from his end customers, and also obtain a loan against the large quantities of copper he was shipping and keeping in warehouses. Over the years, the link between copper and cash has been successful, and the ebbs and flows of China’s credit cycle have become a key driver in the global market.
He would use money raised from his copper business to speculate on the exchange or, increasingly, invest in China’s booming real estate sector. Starting around 2011, he built hotels and business centers, and even his own warehouses in the Shanghai beltway.
“In some ways the story of Maike is the story of modern China”
As the state has become an ever greater force in China’s business world, it has focused on investing in its hometown of Xi’an, supporting projects under Xi Jinping’s Belt and Road Initiative.
This year, however, He’s Empire began to wobble.
The city of Xi’an faced a month-long lockdown in December and January, and further restrictions in April and July when Covid resurfaced, hurting He’s property investments. His hotels sat almost empty for months, and some commercial tenants stopped paying rent.
Maike was one of several companies that impacted the property market during the boom years, said Dong Hao, head of the Ternary Chaos Research Institute. “After the sharp turnaround in real estate last year, such companies faced various difficulties,” he said.
Squeeze a nickel
The wider malaise of the Chinese economy has also weighed on the price of copper, while Maike has suffered as a result of growing bank caution towards China’s commodity sector. Confidence in the industry was hurt by the historic nickel growth in March, as well as several scandals related to missing aluminum and copper ores.
In recent weeks, Maike has struggled to pay for its copper purchases, and several international companies – including BHP Group and Chile’s Codelco – have stopped sales to Maike and shifted cargo.
The future is uncertain. He met with a group of Chinese banks in late August at a crunch meeting organized by the local government of Shaanxi. Maike later said the banks had agreed to support him, including offering extensions on existing loans.
But its trading activity largely came to a halt as other traders became increasingly nervous about dealing with the company. And, in the wake of Maike’s troubles, some of the biggest banks in the sector are withdrawing from metal financing in China in general.
Inside China, it evokes mixed feelings. Many are lamenting that his situation was tragic for China’s commodity industry and a symbol of an economy increasingly dominated by state-owned companies.
Others would be less sad to see the end of a business model that elevated copper to a financial asset and sometimes left import margins diverging from physical fundamentals.
“For many years, traders like Maike have been very important to the import of copper into China – they have been consistently bought to keep the flow of funding going,” said Simon Collins, former head of metals trading at Trafigura Group and the company. CEO of TradeCloud digital trading platform. “With the property market the way it is, I think the music could be stopping.”
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