September 27, 2022

Could Chinese copper imports drop over the coming months? Maike Metals, which is responsible for nearly 25% of China’s copper imports and one of the country’s largest trading houses, is restructuring and selling assets as it fends off a liquidity crisis, according to the Financial Times and Reuters. Maike and other trading firms rely upon short-term financing, using its metals inventory as collateral. However, the company is currently experiencing a liquidity crisis as banks have stepped away from financing physical metals trading. Maike is not only alone in this situation, at least two other major Chinese metals trading companies have had credit lines frozen in recent weeks, according to Bloomberg reports from earlier this month.  Maike also has substantial real-estate assets that have deteriorated in value due to China’s ongoing real-estate demand crisis, further exacerbating the company’s dire financial situation. The company is currently meeting with various banks and seeking government investment as it restructures and sells assets.

The woes that Maike and other trading firms are facing could have global implications, as the supply that Maike and its competitors normally purchased will likely need to seek a new outlet. However, with both Chinese and global copper demand on the decline, it is unclear who might pick up the potential slack in demand. This could further weaken global prices. LME Copper prices have already dropped significantly lower in recent months. The last trade on the 3M Select was $7,420.00/mt (7:00 AM CST), down almost $2,400/mt from the June 7 high of $9,805.50/mt. This could provide a better opportunity for end-users to hedge future needs into 2023 and beyond by buying swaps, as this strategy would establish a maximum copper price. Such positions are standard for consumer hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (9/27/2022)

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9/25/2022: Chinese copper trader Maike will sell assets and restructure, Financial Times reports

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