Copper and iron markets have been put under significant pressure as China’s premier warned some struggling companies will fail in the wake of the country’s first domestic bond default.
Chinese onshore iron ore spot prices fell more than 10% this week to levels last seen in 2009, triggering steep drops in global markets for the metal.
Copper on the LME fell to $6,376.25 (£3,832) per tonne, its weakest level since 2010. According to Reuters, China’s first domestic bond default, by the Chaori Shanghai Solar Energy Science & Technology Co, has raised concerns about a possible unravelling of those loan deals which have used copper as collateral.
Moreover, the subsequent default of steel mill Haixin has affected iron ore markets and pushed prices to their lowest level since the global financial crisis in 2009.
Sources in the UK iron and copper markets told MRW that suppliers tended to limit availability of affected metals until the markets rose again.
Until now, the Chinese government and state-owned banks have kept companies afloat by providing bailouts or debt extensions, and have kept borrowing costs low for debt-ridden companies.
But the privately owned Haixin and the government-owned Chaori Shanghai Solar were both unable to cope with their debts. China’s premier Li Kequiang has warned of future defaults.
The collapse of Haixin, through a failure to repay loans, has sparked fears through the local and shadow banking sectors.
According to the Financial Times, Haixin and other steel mills are struggling with severe overcapacity, heavy debt loads and a softening market. More than half of them are thought to be losing money.
A third firm, Tianwei Baobian Electric, a Chinese solar energy equipment firm, has had its bonds suspended on the Shanghai exchange after a second year of net losses.
The exchange issued a de-listing warning and will decide in seven trading days whether to continue the embargo on trading Tianwei Baobian Electric’s bonds until losses are reversed.