Metals traders in China had a tough time last year as shrinking bank credit choked up their cash flow, but one successful merchant trader managed to circumvent the restrictions through a paper trade it now wants to expand into copper imports. Ocean Resources, part of a conglomerate based in the south-eastern Shaanxi province, is a metals trader with few downstream customers. Instead, it boosts its cash flow by trading commercial invoices with other traders in the country.
This trade is similar to operations on the London Metal Exchange, the world's biggest marketplace for industrial metals, where trade of warrants, or paper titles referring to a specific parcel of metal in a set location, is commonplace. Unlike the LME, flipping paper is not regulated by the Shanghai Futures Exchange, but it helps beef up a company's domestic turnover - which in turn burnishes its credentials to obtain letters of credit (LC) from banks.
This is one way domestic traders have managed to circumvent Beijing's stranglehold on credit, and Ocean Resources is one of the bigger companies that have succeeded in doing so. Now, with a $30 million LC under its belt from Standard Chartered and credit lines from Standard Bank, thanks to 2011 turnover of almost 5 billion yuan ($793 million), the company is seeking to ramp up its real operations in China's domestic market, while also sourcing material from abroad.
"At the moment we need long term and steady imports from overseas. We don't care whether they (suppliers) are big or small, as long as they can supply us the goods," Duan Hansen, the firm's assistant general manager told Reuters in an interview in Shanghai. Ocean Resources, which also has businesses in real estate, insurance and finance, currently trades around 330,000 tonnes of domestic zinc per year in this way, which accounts for roughly 80 percent of the firm's turnover. Its commodity arm also trades copper cathode.
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