Via AG Metal Miner
Recent aluminum supply news remains inundated with the Zhongwang Holdings controversy. Many remember the case from 2019 when US prosecutors accused six southern California companies of evading aluminum import duties. The organizations had ties to Zhongwang Holding’s owner Liu Zhongtian and the skipped duties came to $1.8 billion total.
The prosecutors claimed that between 2011 and 2014, the companies sold 2.2 million aluminum pallets to a US entity controlled by Liu. They then utilized melting facilities to turn the pallets back into commercial products. Finally, they made “sales” to shell companies to inflate the company’s financial position.
The Financial Times reported extensively on this ordeal. The case brought notoriety to both Liu and his aluminum company, thrusting the firm into the public eye in the West.
A Tale of Poor Decisions
Fast forward to three years later and Zhongwang holdings have declared bankruptcy. Though this is hardly surprising for such a shifty operation, it reared consequences upon the global aluminum supply.
For anyone familiar with the 2019 shenanigans, the move outlines how some of China’s private sector corporations operate. A company with a market cap of $3.8 billion having its 252 subsidiaries and affiliates officially declared bankrupt by a court in Shenyang? It’s quite the decision. On top of that, the company boasts eye-watering debts of up to $64 billion. It’s like the economic equivalent of the “wild west.”
Indeed, Liu grew Zhongwang via debt-fueled acquisitions. He then diversified into all manner of initially domestic, but later overseas, enterprises using only the loosest logic. For instance, the purchase of a luxury Australian yacht maker likely netted the group nothing.
Meanwhile, the acquisition of a high-quality German aluminum tube extruder, Aluminumwerk Unna, made more sense. At the very least, it provided the advantage of nominal vertical integration. However, China’s export tax on billets meant Zhongwang could never profitably supply its acquisition with raw materials. As a result, Una was always going to be a stand-alone subsidiary.
That may prove a saving grace as administrators try to divest businesses to meet creditors’ demands for compensation. Still, for the time being, many parts of the group are limping on, often with local state support. That said, Beijing is very unlikely to step in and save the business.
Through interviews with local traders, MetalMiner learned that parts of the group would likely suffer takeovers. In most cases, this will come from state enterprises with deep, state-financed pockets and a vested interest in maintaining market stability.
Aluminum Supply Could Suffer Regardless
Zhongwang remains, at least in capacity terms, Asia’s largest manufacturer of aluminum extrusions. And while the domestic market is softening, having the group’s mill shut down would leave a sizable hole in the domestic aluminum supply.
Still, some intriguing questions remain. For instance, who will emerge among state enterprises to take over those plants deemed viable? Moreover, will Zhongwang’s collapse prompt any regulation change in Beijing’s oversight of the private sector?
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After the collapse of so many property and construction companies, of which Evergrande is only the tip of the iceberg, bankruptcy among private sector manufacturers is not a trend the authorities want to see perpetuated.
By Stuart Burns
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