After launching metal-filled trains to protect them from thieves on icy winter nights, He Jinbi built a copper trading space so sturdy that it processes one in 4 tons imported into China.
Born as a trader with an infectious sense of humor, Maike Metals International Ltd. , 57, grew through the commodities fever in the early 2000s, to become a key intermediary between China’s trading heartland and global traders such as Glencore Plc.
Now Maike is suffering from a liquidity crisis and He’s empire is threatened. Domino effects can be felt around the world: the company processes one million tons a year, a quarter of China’s subtle copper imports, making it the world’s largest player. maximum industry direction for metal, and a primary industry on the way to London. Metals Exchange.
With its network of contacts providing an enviable glimpse into factories and structure sites in China, it has been the poster of China’s commodity-driven boom for two decades: it made a fortune from its voracious demand for raw materials and then plunged it into the red. -hot real estate market.
But this year, Beijing’s restrictive Covid Zero policies have hit the real estate market and the value of copper hard. After months of rumors, he publicly admitted last month that Maike had asked for help over liquidity issues.
He claimed that the disorders were transitory and affected only a small component of his business, but that his business partners and creditors were cautious. it implied that it took copper out of China that had backed its loans to Maike.
Even if it can get it from the government and state-owned banks, industry leaders say Maike will likely struggle to maintain its dominant role in China’s copper market.
While it is a microcosm of China’s economic boom, its current problems may mark a turning point for commodity markets: the end of an era in which Chinese demand can only increase.
“In a way, maike’s story is China’s fashion story,” said David Lilley, who began dealing with Maike in the 1990s, first as a trader at MG Plc and then as a co-founder of the commercial space and hedge fund Red Kite. “He navigated intelligently about the dynamics of the Chinese economy, but no one is ready for Covid lockdowns. “
This account of He’s for the most sensible of China’s commodity industry is based on interviews with trading partners, rivals and bankers, many of whom have asked not to be identified due to the sensitivity of the situation.
A spokesperson for maike declined to comment on the story, but said in response to Previous Questions from Bloomberg on Sept. 7: “Our company has been deeply concerned about the progress of the commodity industry for nearly 30 years. He had maintained steady progress as Evidenced through all. It will soon resume general operations and continue to contribute to the progress of the industry and the local economy.
Born in 1964 in China’s Shaanxi province, he first encountered copper when he was tasked with searching for commercial fabrics for a local company. frosty 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. buy and sell mechanical and electrical products. But He’s first encounter with copper had an impact, and they temporarily focused on scrap, copper wire, and subtle copper.
With a charming nature, a wide smile and a gentle sense of humor, he is an herbal staple trader whose air of mystery would help him build a wide network of friends and business contacts.
As China’s economy liberalized, it used its connections to turn Maike into an intermediary between mainstream investors and the growing crowd of copper consumers in China.
Within 15 years, China would go from one-tenth of the world’s copper to 50 percent, triggering a supercycle of sky-high costs for steel used in electrical cables, from electrical cables to air conditioning units.
It was a crazy time when, for many, China’s commodity markets were little more than a casino. Groups of investors come together to bet together, ambushing their warring parties on the other side of the market. The bravest players would be nicknamed in honor of martial arts. masters of the popular novel.
While many investors came here and left for the smart years, he persisted.
“We’ve done a lot of business together over twenty years,” Lilley said. “There were times when the Chinese steel industry was a true Wild West and stood out for its honor. He would keep his word. “
It also had a must-have characteristic for a successful commodity trader: an appetite for risk.
His big break came in the early days of the supercycle. In May 2005, China’s metallurgical industry gathered in Shanghai for the annual convention of the Shanghai Futures Exchange. it would soon fall. Even China’s tough State Reserve Office had made bearish bets.
They were surprised to hear that Barclays analyst Ingrid Sternby expected copper to succeed at new highs as the Chinese called for an outstretched supply. But they temporarily proved him right, as costs more than doubled in the next 12 months. Domestic scandal and top Chinese investors missed the opportunity to profit from the gains.
He is not among them. By paying close attention to the demand of its Network of Chinese customers, it built a bullish position and benefited handsomely from the rise in global prices.
It was a trend he would successfully repeat several times over the years. Their preferred strategy concerned put options: down, at the price their Chinese consumers would likely see as a buying opportunity, and upward, at a price they would likely see as a buying opportunity. too expensive.
While he appreciated some of the outward symptoms of success, other people who have known him for many years say he remained grounded even though his net worth reached levels that likely made him, at his peak, a dollar billionaire. .
In Shanghai, he had lunch at a restaurant serving Xi’an cuisine, where he ate his favorite steamed bloodless noodles and fried leek meatballs for 50 yuan ($7).
He’s business evolution reflects the adjustments that are taking place in the Chinese business world. Although he started out as a physical distributor of copper, he soon pioneered the development of interconnections between commodity trading and money markets in China.
As Maike became the country’s largest copper importer, he began using steel to raise funds. You may only ask your end consumers for upfront bills and also borrow from the growing volumes of copper you shipped and held in warehouses. Over the years, the link between copper and liquidity has been well established, and the ebb and flow of China’s credit cycle has become a key driving force of the global market.
He would use the money raised from his copper company to speculate on the stock market or, increasingly, invest in China’s burgeoning real estate sector. Since about 2011, it built hotels and shopping malls, and even its own warehouses in the Shanghai district.
“In a way, Maike’s story is China’s story. “
As the state has become a dominant force in China’s business world, it focused on making an investment in its hometown of Xi’an through support for projects under Xi Jinping’s Belt and Road Initiative.
This year, however, He’s empire began to falter.
Xi’an City faced a one-month shutdown in December and January, and new restrictions in April and July when covid reappeared, hurting He’s real estate investments. Their hotels remained almost empty for months and some advertising tenants simply stopped paying rent. .
Maike was one of many corporations that plunged their fortunes into the real estate market in the boom years, said Dong Hao, director of the Chaos Ternary Research Institute. “After the strong recovery of real estate last year, those corporations have faced various difficulties. “he said.
The general malaise of the Chinese economy also caused the value of copper to fall, while Maike suffered at the same time as a result of the growing caution of banks towards the raw materials sector in China. Confidence in the industry was shaken by the historic nickel compression in March, as well as several scandals related to the lack of aluminum and copper ores.
In recent weeks, Maike has begun to struggle to pay for its copper purchases and several foreign companies, BHP Group and Chile’s Codelco, have suspended sales to Maike and diverted shipments.
The long term is uncertain. He met with a Chinese banking organization in late August at a critical meeting organized by Shaanxi’s local government. Maike said banks had agreed with him, adding that he was extending existing loans.
But its trading activity has come to a halt in large part because other investors are increasingly nervous about dealing with the company. And, as a result of Maike’s troubles, some of the largest banks in the sector are pulling out of steel financing in China in general.
In China, their misfortunes arouse combined emotions. Many lament its scenario as tragic for China’s commodity industry and emblematic of an economy ruled by state-owned enterprises.
Others would be less unhappy to see the end of an economic style that erected copper as a monetary asset and separated import margins from physical fundamentals.
“For many years, investors like Maike have played a very important role in copper loading in China – they have constantly bought it to maintain financing,” said Simon Collins, former head of metals trading at Trafigura Group and chief executive of virtual trading. TradeCloud platform. ” With the real estate market as it is, I think the music can stop. “
(Reporting by Alfred Cang and Jack Farchy with Winnie Zhu).