Delong Group, particularly its subsidiary Jiangsu Delong Nickel Industry Co., Ltd., recently filed for bankruptcy. This decision was influenced by multiple factors, including economic challenges, internal company issues, and external pressures. Here’s a detailed look at why Delong Group chose bankruptcy and its potential impact on major customers.

1. Economic Slowdown and Market Fluctuations

Global Economic Cooling

In recent years, the global economic growth rate has slowed, impacting various industries. Delong Nickel Industry, part of the steel industry, was not immune to these effects.

Weak Market Demand

With the decline in global demand, the market demand for stainless steel and other steel products decreased, leading to lower product prices and reduced profitability for companies.

Nickel Market Volatility

Nickel is a crucial raw material for stainless steel. The fluctuations in the nickel market significantly affect the stainless steel industry. The rapid increase in nickel production in Indonesia disrupted the nickel and stainless steel market, causing the price of nickel pig iron to drop by more than 40% since early 2022, putting immense pressure on stainless steel producers like Delong Nickel Industry.

2. Internal Company Issues

High Debt Levels

Delong Nickel Industry accumulated substantial debt during its operations. With worsening market conditions, the company’s ability to repay its debts was severely challenged.

Legal Disputes

Delong Nickel Industry and its founder, Dai Guofang, are currently facing multiple legal disputes with contractors and suppliers, further exacerbating the company’s financial difficulties.

Internal Management Problems

The company may have experienced management and operational issues, leading to inefficiencies and increased costs.

3. External Factors

Government Intervention

According to internal sources, local government authorities have taken over most of Delong Nickel Industry’s factories to recover debts and protect employee rights. Although this move helps safeguard employees, it further complicates the company’s situation.

Policy Adjustments

Government requirements for environmental protection and production safety have been increasing. Companies need to invest more funds in technological upgrades, which also adds to their financial burden.

4. Immediate Causes of the Bankruptcy Application

Creditor Application

On July 24, Xiangshui Jiangjiang New Town Construction Development Co., Ltd. submitted a bankruptcy application against Jiangsu Delong Nickel Industry Co., Ltd. to the Xiangshui People’s Court. This indicates that Delong Nickel Industry’s financial situation had deteriorated to the point where it could no longer resolve its issues independently, necessitating bankruptcy proceedings to clear debts and seek restructuring or liquidation.

Impact on Major Customers

Delong Group’s bankruptcy might have various impacts on its main customers:

1. Supply Chain Stability

Supply Disruption Risk

As a producer of stainless steel products, Delong Group’s bankruptcy could lead to a halt or suspension of production activities, affecting the stability of supply chains for major customers. If Delong Group is a key supplier, customers might face supply interruptions.

Finding Alternative Suppliers

To mitigate the risk of supply disruptions, customers might need to urgently seek and evaluate other suppliers to ensure continuous production activities. This process could require time and costs, potentially affecting production plans and market competitiveness.

2. Price Fluctuations

Rise in Raw Material Prices

If Delong Group’s bankruptcy reduces the supply of stainless steel and related products in the market, prices for these products might rise. For customers relying on these products, costs could increase, affecting profitability and market competitiveness.

Changes in Market Competition

Delong Group’s bankruptcy might alter the competitive landscape. Other suppliers might seize the opportunity to expand their market share, raise prices, or adjust sales strategies. These changes could impact customers’ procurement strategies and costs.

3. Credit Risk and Financial Losses

Loss of Receivables

If there are receivables between customers and Delong Group, the bankruptcy might lead to customers being unable to recover these funds, resulting in financial losses.

Adjustment of Credit Evaluation

Delong Group’s bankruptcy might prompt customers to adjust their credit evaluations. Customers might reassess the risks of partnering with Delong Group and similar companies and adjust their credit policies and contract terms accordingly.

4. Market Confidence and Brand Image

Decline in Market Confidence

Delong Group’s bankruptcy could erode market confidence in the entire industry or related sectors. Customers might worry about similar risks and adopt more cautious procurement strategies or seek more stable suppliers.

Brand Image Damage

If Delong Group is an important partner or supplier, its bankruptcy might negatively impact the customer’s brand image. Customers might need to spend additional time and effort explaining and clarifying the event’s impact to their clients and consumers.

5. Uncertainty of Subsequent Impacts

Uncertainty in Bankruptcy Proceedings

Delong Group’s bankruptcy proceedings might take some time and involve complex legal and financial arrangements. This makes it difficult for customers to accurately predict and assess the specific impact on their business.

Possibility of Restructuring or Liquidation

During the bankruptcy process, Delong Group might undergo restructuring or liquidation. Both scenarios could have different impacts on customers’ supply chains, prices, and credit. Customers need to closely monitor the progress of the bankruptcy proceedings and take corresponding measures.

Conclusion

In summary, the reasons behind Delong Group’s bankruptcy are multifaceted, involving economic slowdown, market volatility, internal issues, and external factors. The bankruptcy’s impact on major customers spans supply chain stability, price fluctuations, credit risk, financial losses, market confidence, brand image, and subsequent uncertainties. Customers need to closely follow the event’s developments and take appropriate measures to mitigate potential risks and losses.