MANY small and medium-sized Chinese metals factories with trading units are looking to merge with bigger firms to help win loans, as local banks clamp down on lending to the base metals sector, traders and factory, sources in China said.

    Chinese banks have kept credit conditions tight for base metals firms after an alleged metal financing scam came to light in June 2014 in the port of Qingdao in northeastern Shandong Province.

    Mergers increase the size of physical assets such as land and equipment, which Chinese banks are requiring as collateral for loans after some lost money over Qingdao, as well as on lending for trade financing to steel firms in 2012.

    “Many (companies) want to use mergers to bring in more credit,” said a sales manager at the Shanghai-based trading unit of a medium-sized zinc-copper alloy manufacturer, adding that his firm was looking for a potential partner.

    The trading unit was currently using the copper-zinc alloy factory as collateral for bank loans, said the manager, who declined to be named as he was not authorized to talk to media.

    The cash crunch forced many small metals trading firms to close last year and the impact has extended to medium-sized firms since late 2014.

    City-owned Penghui Copper in Yantai City in Shandong, amedium-scale copper producer with a trading unit in Shanghai, halted operations in December after running out of cash.

    The closure of small players has reduced buying of spotcopper, zinc and nickel by Chinese importers from the international market over the past eight months.

    But a merger allowed one battery producer in Guangdong to resume spot imports of copper this year after it failed to open letters of credit for some metals imports last year, according to a company source and traders.

    The battery producer, also a big zinc and copper importer, merged with two large industrial companies in Guangdong in late 2014 and the merged company held bigger credit, the company source said, adding that the firm was considering buying term copper for 2015/16 shipments.

    The company source declined to be named because he was not authorized to talk to media.

    (SD-Agencies)