Just-in-time deliveries spur metals hedging

Mainland manufacturers, pressured by surging labour costs and the yuan's appreciation in recent years, have been ordering metal only when it is needed, forcing suppliers to hedge their exposure on the commodities market, according to zinc and nickel alloys distributor and maker Lee Kee Holdings.

"Due to the sluggish global economy, many customers are ordering from us on a 'just-in-time' basis to stay competitive, so we must keep inventory to meet their needs," said Lee Kee's chief executive Clara Chan Yuen-shan, a fourth-generation descendant at the helm of the 67-year-old firm in Tai Po. "So we need to hedge our exposure."

Lee Kee, which has a market share of more than 70 per cent of the mainland's zinc-alloy imports, last year became one of about 50 trade members of the London Metal Exchange, which was acquired by Hong Kong Exchanges and Clearing in 2012.

Zinc is commonly used in galvanised steel to make it anti-corrosive. Its alloys can be found in toys, cars, housewares and fashion accessories.

Lee Kee serves about 1,100 customers across more than 20 manufacturing industries in mainland China and Southeast Asia, down from 1,400 in 2009, as rising labour and other costs, as well as the yuan's gain, saw weaker producers close down or merge with stronger outfits.

To facilitate its customers' cost-reduction efforts, Chan said it had to go along with their expansion abroad, besides providing technical services like metal-quality testing that helped them cut production costs and enhance efficiency.

"Typically, our customers have set up second plants in Southeast Asia," Chan said. "They have yet to move their entire production facilities because China's supply chain is so well established."