(July 29): One of China’s biggest commodity traders is navigating difficulties triggered by the collapse of Jiangsu Delong Nickel Industry Co, a key client for its metals business.

Xiamen Xiangyu Co, a listed trader with revenues of more than US$60 billion (RM279.27 billion) last year, said on Monday that its state-owned parent group would take on any claims with Jiangsu Delong, the stainless steel producer whose debt woes have gripped the global commodities sector.

On Friday, Xiangyu’s shares had slumped by their 10% daily limit in response to legal moves by a Jiangsu Delong creditor to pursue a restructuring of the steelmaker. The transfer of financial exposure to the parent Xiamen Xiangyu Group Corp would “protect the interests of the listed company and its investors,” Xiangyu said.

Shares in the trading firm extended declines on Monday, falling 4.6% in Shanghai for their lowest close since 2020. 

The collapse of Jiangsu Delong — owned by legendary metals entrepreneur Dai Guofang and his family — is the latest in a wave of dramatic debt crises to sweep through the world’s second-biggest economy as growth slows. The case is being closely watched by hundreds of bankers, wholesalers, equipment suppliers and commodity traders in and outside of China, due to Dai’s extensive business networks. 

Jiangsu Delong has annual capacity to make more than 10 million tonnes of stainless steel and other alloy products from plants in China and Indonesia, but many of its operations are facing headwinds from falling nickel prices. 

Xiangyu’s statement on Monday didn’t give details about the size of claims to be transfered to its parent, but public records show the listed unit is a major counterparty of Jiangsu Delong. 

In an exchange statement earlier this month, Xiamen Xiangyu listed Jiangsu Delong as its largest metals customer in 2023, with trades of ferronickel and ferrochrome products valued at 7.1 billion yuan (RM4.56 billion). Xiangshui Hengsheng Stainless Steel Casting Co, a sister company of Jiangsu Delong that also faces a restructuring request, was Xiamen Xiangyu’s largest metals-trading counterparty in 2022 with transactions of 13.7 billion yuan.

Xiangyu said the Jiangsu Delong exposure to be handled by the parent company included pre-payments and receivables, without elaborating. Pre-payments generally refer to partial payments made by a customer ahead of delivery of material. Receivables are debts owed to a firm by its customers for goods that have been delivered but not yet paid for. 

In commodities trading, these are sometimes a way for the counterparty with stronger cash flows to finance the weaker party. Such a relationship generally requires the receiver to provide collateral and price discounts to the supplier.

In a June report, ratings firm China Lianhe Credit Rating Co said Xiamen Xiangyu increased the scale of pre-payments since 2023 in order to “stabilise upstream resources”. As of end-March this year, the company’s total debt has increased to 64.6 billion yuan, and its debt burden is relatively heavy, according to Lianhe.

Xiangyu said in its statement that Jiangsu Delong factories referred to in court documents are under supervision by the government and are producing normally.

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