China's Xiangyu moves to protect creditor's interest amid bankruptcy filing of stainless steel producer

Shanghai-listed commodity trading house Xiamen Xiangyu will transfer its creditor's rights against embattling stainless steel producer Jiangsu Delong Nickel to Xiamen's parent company Xiangyu Group, in a bid to protect interests of the listed company, according to a July 29 company statement.

The move comes after Jiangsu Delong recently filed for bankruptcy, according to the information on National Enterprise Bankruptcy Information Disclosure Platform, stoking market concerns in the stainless steel sector. The company's bankruptcy move stems from the rapidly declining stainless steel and ferronickel prices amid a supply surplus, industry sources said.

Jiangsu Delong is a leading Chinese stainless steel producer and has a 5 million mt/year of stainless steel cold rolling production capacity, according to the latest annual report released by Xiangyu Group, which is a state-backed investment conglomerate.

Market participants said they were closely monitoring the impact on domestic ferronickel market supply as Jiangsu Delong is one of the leading ferronickel suppliers in China.

The case

The People's Court of Xiangshui county in Jiangsu province said July 24 it was hearing on appointing a bankruptcy reorganization administrator for Jiangsu Delong and its three other subsidiaries: Juhe Metal Products, Defeng Metal Materials and Hengsheng Stainsteel Steel Casting.

A final decision on the reorganization would depend on the whether the case is taken up by the court.

Due to a large number of creditors and complicated legal relationship, these cases have a scope of significant regional impact, the People's Court of Xiangshui county said.

Xiamen's partnership with Jiangsu Delong

Xiangyu Group said that Jiangsu Delong and its subsidiaries were reporting normal production and operations currently under the supervision of the local government, and so far, have continued to deliver according to the capacity.

Xiamen Xiangyu partnered with Jiangsu Delong to serve the stainless steel industry chain, providing supply chain services such as raw material procurement and finished product sales, according to Xiangyu Group's annual report.

Xiamen Xiangyu purchases hot-rolled stainless steel and cold-rolled strip from Defeng Metal and Juhe Metal.

It joined hands with Jiangsu Delong to put a 2.5 million mt/year stainless steel project into operation in the first half of 2020 as part of their investments in Indonesia.

Jiangsu Delong has commissioned more than 500,000 mt/year ferronickel production capacity in Indonesia, according to media reports.

Indonesia's role

Indonesia has attracted several investments from Chinese market participants in nickel smelting projects due to its proximity to resource producing areas and low smelting cost advantages. Ferronickel production is the preferred business as it requires the shortest construction investment period.

As investments poured in and projects came on stream, Indonesia's supplies to China rose, adding pressure to the Chinese domestic market.

In the long term, the ferronickel market in China is expected to continue facing oversupply pressure as supplies from Indonesia rise, sources said. However, in the short term, nickel pig iron prices have received support because of tighter upstream nickel ore supply.

Platts, part of S&P Global Commodity Insights, last assessed nickel pig iron with 10% nickel content at $120.5/mtu FOB Indonesia July 24, up $1/mtu on the day and $2.5/mtu on the week.

The price reflects the spot value of nickel pig iron normalized to 10% nickel content for cargoes with 8%-15% nickel content, loading at major Indonesian ports.