Zhuzhou Smelter shorted 420K tonnes of zinc — $176M loss nearly bankrupted the company

Zhuzhou Smelter was one of China's largest lead and zinc producers, a state-owned enterprise based in Hunan province. Its 'Torch' brand zinc was registered on the London Metal Exchange in 1991, giving the company direct access to international futures markets.

In 1992, the company was authorised to trade LME zinc futures for hedging purposes. But the trading quickly exceeded its mandate. By 1994, the company had already lost $15 million in unauthorised speculative trading. Instead of stopping, the company doubled down. In August 1996, facing projected losses of 80 million yuan on increased zinc output, management decided to expand its short positions on the LME.

The situation spiralled out of control when the manager of the import-export subsidiary began secretly selling zinc futures far beyond authorised limits. By June 1997, the manager had privately sold 256,800 tonnes of zinc contracts, bringing the total short position to 420,000 tonnes — nearly three times the company's annual production capacity of 150,000 tonnes. International traders, led by a major Swiss trading house, identified the oversized position and launched a short squeeze. Zinc prices surged from around $1,000 per tonne to over $1,700 per tonne in mid-1997.

The total loss reached $175.8 million (approximately 1.4 billion yuan at the time), nearly bankrupting the company. The case became a landmark example of how Chinese state-owned enterprises lost control of overseas derivatives trading in the 1990s.