Tycoon Running a Quarter of China’s Copper Trade Empire is Suffering a Liquidity Crisis

He Jinbi started by protecting metal trains from thieves during cold winter nights. He later built a copper trading company so powerful it can handle every four tonnes of imported copper into China.

The 57-year-old was a natural trader with a great sense of humour. He grew Maike Metals International Ltd. in the middle of the 2000s rush for commodities. To become a major conduit between China’s industrial heartlands, and global merchants such as Glencore Plc.

Maike is now in a liquidity crisis and his empire is at risk. The ripple effects could have an impact on the entire world. Maike’s company handles over a million tonnes annually — 25% of China’s refined copper imports. This makes it the largest player in the most significant global trade route for metal and a major trader at the London Metal Exchange.

His vast network of contacts gives him an enviable view of China’s factories, and he has been a shining example of China’s commodities-fueled boom over the past two decades. He made a fortune off its ravenous demand and then jumped into the hot property market.

However, Beijing’s Covid Zero restrictions have made a significant impact on the copper price and property markets. After months of rumours, he admitted publicly that Maike had requested help to solve liquidity problems.

Although the problems were temporary and only affected a small portion of his business, he said that his trading counterparts and creditors are being cautious. Chinese traders have stopped new business deals. ICBC Standard Bank Plc was worried enough to move some copper from China, which had supported its lending to Maike.

Industry executives believe Maike will struggle to keep its dominant position in China’s copper market, even if it receives support from the state banks and the government.

His rise was a microcosm of China’s economic boom. However, his current woes could mark a turning point in commodity markets: it may be the end of an era when Chinese demand could only increase.

David Lilley, who first dealt with Maike as a trader at MG Plc, and then as co-founder and chief executive of Red Kite trading house and hedge fund, said that Maike’s story was in some ways the story of modern China. He has mastered the Chinese economy’s dynamics, but no one is prepared for the Covid lockdowns.

Interviews with rivals, bankers and business associates have been used to create this account of his rise up to the top of China’s commodities sector. Many of these people declined to name because of the sensitive nature of the situation.

A spokesperson for Maike declined to comment but stated in response to questions from Bloomberg on Sept. 7, “Our company has been deeply engaged in the development and growth of the commodity sector for almost 30 years.” As everyone witnessed, it had maintained steady growth. It will soon resume normal operations, and continue contributing to the development and growth of the local industry.”

Born in 1964 in Shaanxi in China, his first contact with copper was when he took a job as a procurement officer for an industrial material firm. He was a young man who worked as a guard on copper trains that ran through China. This could have been a dangerous job in the cold winter months.

He founded Maike with several of his friends in Xi’an in 1993. Maike is known for being the capital of China’s first emperor, and home to the famous Terracotta Army statues. To buy and sell electrical and mechanical products, the group borrowed 50,000 Yuan ($7,200). However, His first encounter with copper made an impression, so they moved quickly to scrap metal, copper wire, and refined copper.

His personality was warm and friendly, and his smile and light-hearted humour made him a natural commodity trader. This charisma helped him to build a large network of business and friendship contacts.

He was able to use his connections to make Maike an intermediary between large international traders and China’s growing throngs of copper consumers as China’s economy opened up.

China will consume a tenth to a half of the world’s copper supply in 15 years. This would trigger a supercycle that saw the price of copper skyrocket. The metal is used in all sorts of electrical wires, from power cables to air conditioning units.

Commodities Casino

It was a wild time when China’s commodity markets seemed like a casino to many. Many traders would join forces to place bets together and launch ambushes against their counterparts on the other side. The bravest players would be named after popular novel martial arts masters.

Despite the fact that many traders left during these years of go-go, he remained.

Lilley said, “We did a lot of business together over 20 years.” He was an honourable man, even though there were times when China metals trading was very wild. He would keep his word.”

He had an additional characteristic that is essential to a successful commodity trader: an appetite and willingness to take risks.

In the very early days of the supercycle, he made his big break. China’s metals sector gathered in Shanghai to attend the annual conference of the Shanghai Futures Exchange. The copper prices had risen dramatically and many of the attendees, including producers, fabricators, and traders, believed they would fall soon. Even China’s powerful State Reserve Bureau made bearish bets.

They were stunned to learn that Ingrid Sternby, a Barclays analyst, predicted that copper would reach new highs because Chinese demand outstripped supply. However, she proved to be right as copper prices increased by more than twice in the following 12 months. The SRB’s losses were a scandal and many Chinese traders missed out on the chance to cash in on these gains.

This was a pattern that he would repeat many times over the years. His preferred strategy was to sell options. On the downside, he would offer them a chance to buy, while on the upside they would consider it too expensive.

Although he had some success trappings, those who knew him for years said that he was down-to-earth despite his wealth, which probably made him a billionaire at his peak.

He would often eat lunch in Shanghai at a restaurant that served Xi’an cuisine. There he’d eat his favourite steamed cold pasta and fried leek dumplings, which cost him 50 yuan ($7).

His business evolved in tandem with the changing business landscape in China. He started as a distributor for copper physical, but he quickly pioneered the growing interconnections of the commodities and financial markets in China.

Maike rose to be the country’s largest copper importer and began to use the steady flow of metal for financing. He was able to ask for prepayments from end customers and borrow against the increasing quantities of copper he was shipping. The connection between copper, cash and liquidity became well-established over the years. As a result, the global market was influenced by the fluctuations in China’s credit cycles.

He would either speculate on the exchange with the money he earned from his copper business or invest in China’s booming realty sector. Around 2011, he started to build hotels, business centers, as well as his own warehouses in Shanghai’s bond zone.

As China’s economy became more dominated by the state, he began to invest in his hometown of Xi’an and support projects under Xi Jinping’s Belt and Road Initiative.

However, His empire began to crumble this year.

The December lockdown in Xi’an and January was a month long. Additional restrictions were placed in April and July when Covid reemerged, which hurt He’s property investments. His hotels were almost empty for months and many commercial tenants stopped paying rent.

Dong Hao of Chaos Ternary Research Institute said Maike was just one of many companies that jumped into the boom years’ property market. He said that such companies had faced many difficulties after the sharp turnaround in realty last year.

Nickel Squeeze

The Chinese economy’s overall malaise has caused the copper price to drop. Maike also suffered from the growing caution of banks towards the Chinese commodity sector. The historic nickel squeeze of March and several scandals involving copper ores and missing aluminium have eroded trust in the industry.

Maike started having difficulty paying its copper purchases in recent weeks. Several international companies, including BHP Group, Chile’s Codelco, and Chile’s Codelco, halted sales to Maike and diverted cargoes.

The future is uncertain. In late August, he met with a group of Chinese banks at a crunch meeting organised by the Shaanxi government. Maike stated later that the banks had agreed to support it and offered extensions on existing loans.

However, trading activity in the company has been largely stopped as other traders become more nervous about dealing with it. In the wake of Maike’s problems, many of the largest banks in the sector have stopped financing China’s metals more generally.

His woes are a source of mixed emotions in China. Many consider his fate tragic for China’s commodities industry, and emblematic of an increasingly state-dominated economy.

Others might be sadder to see the end to a business model which elevated copper as a financial asset and sometimes caused import marges to diverge from physical fundamentals.

“Traders like Maike have been very important in the importation of copper into China for many years — they’ve purchased very consistent to keep the flow financing going,” stated Simon Collins, former head of metals trading at Trafigura Group, and CEO of digital trading platform TradeCloud. “With the current state of the property market, I don’t think there is any reason to stop the music.”

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