Top Banks Pull Back From China Metal Financing After Crises
Comment of the Day

September 21 2022

Commentary by Eoin Treacy

Top Banks Pull Back From China Metal Financing After Crises

This article from Bloomberg may be of interest to subscribers. Here is a section:

JPMorgan Chase & Co. and ICBC Standard Bank Plc are cutting back on financing to China’s troubled metals trade, adding pressure to a sector already hit hard by a struggling economy. 

At least three Chinese metal trading companies have had credit lines frozen or reduced by either of the banks in recent weeks, according to people familiar with the matter. The lenders have pulled back after a liquidity crisis emerged at top copper trader Maike Metals International Ltd., said the people, who asked not to be identified discussing private information. 

Both JPMorgan and ICBC Standard Bank have financing relationships with Maike. It’s not clear whether the banks’ pullback from the Chinese metals market is a temporary freeze while they assess their situation, or a more permanent retreat. 

Maike’s admission last month that it asked for government help with liquidity issues is further shaking confidence in the industry, coming after the nickel short squeeze that almost bankrupted Tsingshan Holding Group Co. in March, and two recent cases of missing metal used as collateral for financing deals.

Eoin Treacy's view

Copper is a difficult market. We have clear narrative on the case for growth in demand over the next decade. What we do not have is clear visibility on current demand. China’s economy is slowing down and demand growth is unlikely to return to its pre-economic reorientation trajectory anytime soon. That suggests more weakness now and a possible stiff recovery later. 

I’ve seen my fill of commentary about the copper/gold ratio being a reliable indicator of economy growth versus fear. The recent rebound has been modest at best. There is clear scope for a further decline in this ratio. If anything, the ratio talks about Chinese growth and global fear. 

Against a strong Dollar, both copper and gold are under pressure. Recessions are not positive developments for commodity prices even if the rebound quickly when liquidity becomes more abundant. 


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