ASIATODAY.ID, JAKARTA – Jiangsu Delong Nickel Industry, one of the main players in the global stainless steel industry, is reportedly on the verge of bankruptcy.
This company is the parent of PT Obsidian Stainless Steel (OSS) and Virtue Dragon Nickel Industry (VDNI) which operates in Southeast Sulawesi.
Jiangsu Delong Nickel Industry’s operations in Indonesia, namely Gunbuster Nickel Industry (GNI), in Morowali, Central Sulawesi, are still functioning normally.
However, the authorities in Indonesia continue to monitor developments to ensure operational stability.
Quoted from Reuters, Wednesday, August 7 2024, local authorities in Xiangshui, China, where Delong is headquartered, have submitted a bankruptcy reorganization application for Delong and its three affiliated companies. If the court approves the reorganization, an administrator will be appointed to formulate a restructuring plan.
The stainless steel industry relies heavily on the continued operations of companies such as Jiangsu Delong, which has a production capacity of 7.5 million metric tons. Even though the company generated huge revenues in 2022 of 169.5 billion yuan or around US$23.4 billion, significant financial pressures remained.
Falling ferro-nickel prices and rising material costs left the company facing an estimated annual net loss of 1.8 to 2.2 billion yuan at the Indonesian joint venture, in which Delong owns a 48% stake. In addition, the company’s assets worth more than 4 billion yuan have been frozen by Chinese courts since the beginning of this month.
The three main reasons why Jiangsu Delong Nickel Industry is facing bankruptcy are aggressive expansion and investment, bankruptcy reorganization requests, and a fairly controlled market reaction.
Aggressive expansion and investment
Especially its investment in Indonesia, has made a major contribution to the current financial situation. This expansion has been accompanied by rising costs and falling prices of key materials, such as ferro-nickel. Financial losses suffered by the Indonesian joint venture, in which Delong owns a 48 percent stake, were also a major factor.
The joint venture reported significant annual losses due to falling ferro-nickel prices and rising material costs.
Bankruptcy reorganization request
Formal bankruptcy reorganization requests were filed by four companies controlled by Xiangshui. The court’s decision on this request will determine whether an administrator will be appointed to draw up a reorganization plan, which is essential to restructuring the company’s finances and operations. It is hoped that the reorganization process will help the company stabilize its financial condition and potentially rehabilitate its business. Despite this, the immediate impact on the stainless steel market has been relatively subdued.
Market Reaction
According to analysts, the market remained stable and did not experience significant volatility despite the problems faced by Delong. This market stability can be attributed to the fact that Delong’s difficulties were anticipated in advance.
Previous similar cases in China showed that the impact on production and market prices was relatively minimal. Delong’s ability to acquire Jiangsu Shengte Steel Co during its bankruptcy in 2020 shows that the company is able to overcome financial challenges.
The Coordinating Minister for Maritime Affairs and Investment, Luhut Binsar Pandjaitan, previously said that Jiangsu Delong Nickel Industry Co’s debt restructuring request to the Chinese court had no impact on Indonesia.
According to him, the restructuring request only has an impact on metal supplies in China and has no direct connection with Indonesia.
In China, one of the largest commodities traders, Xiamen Xiangyu Co, is also facing difficulties triggered by the collapse of Jiangsu Delong Nickel Industry Co, a major client of its metals business.
However, the transfer of financial exposure to parent Xiamen Xiangyu Group Corp. is expected to protect the interests of registered companies and their investors. (AT Network)
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