Copper cargoes diverted as Shandong smelter Dongying Fangyuan said to face liquidity crunch

Sources from four concentrate suppliers who spoke to Fastmarkets on condition of anonymity said they are diverting shipments that had been scheduled to Dongying Fangyuan, which produced 748,000 tonnes of cathode in 2018, according to the company’s website. It is now said to be operating at 50% of capacity.

Dongying Fangyuan representatives declined to respond to multiple requests from Fastmarkets for comment.

Discussions with Fangyuan over the past week about payments for incoming cargoes have reached an impasse, the suppliers said.

“They told us they have no LCs in place and are unable to open them in the future,” a supplier, who declined to be named because the conversations were confidential, told Fastmarkets.

Copper concentrate stocks totaling more than 100,000 tonnes are said to be stored in the Shandong ports of Qingdao and Yantai, with LC agents holding the title.

The agents – financing companies that provide deal-specific trade finance and are commonplace in the Chinese concentrate markets – are in the process of offloading the units to other Chinese smelters, the sources said.

Dongying is facing two lawsuits totalling 587.9 million yuan ($83.5 million), according to publicly available court records filed on November 15. Fastmarkets understands at least one of these to be Shandong-based Weihai State-owned Asset Management seeking to enforce repayment of debts owed.

Margins for copper smelters are at their lowest in a decade. Annual copper concentrate treatment and refining charges (TC/RCs), which are paid to smelters for processing raw material into refined cathode, were agreed at 11-year lows of $62 per tonne/6.2 cents per lb for 2020 deals.

Other traditional revenue streams such as sulfuric acid are moribund – smelters are making no margins here – while the copper grade A cathode premium, cif Shanghai is at a four-and-a-half-month low of $54-65 per tonne.

At $6,095 per tonne as of 16:30 London time on Tuesday December 10, the London Metal Exchange three-month copper contract is up by 1.2% since the start of the week and up by 2.2% since the start of the year. The price is being buffeted by bullish fundamentals on one side and a bearish global macroeconomic backdrop on the other.

Shandong, a major oil-refining hub, is home to many industrial companies that are struggling to adapt while China pivots to a more services-led economy. China lowered its 2019 GDP growth target to 6% in March from 6.5% previously and is in the midst of a trade war with the United States.

Bank ABN Amro entered the credit markets to source lenders for a $300 million dual-tranche financing deal on behalf of Dongying Fangyuan, Global Capital reported on Tuesday.

ABN Amro helmed Dongying Fangyuan’s previous foray into capital markets in March 2019, leading a syndicate of seven lenders including Commonwealth Bank of Australia and Intesa Sanpaolo, into a term loan facility. Trading house Trafigura was named the offtake partner for the cathode produced.

Additional reporting by Sally Zhang in Shanghai and Justin Yang in London.