Metal markets rattled by port probe
Print Edition
GLOBAL trading houses and banks are scrambling to check their exposure to a probe into metal financing at China’s Qingdao port, as concern grows that a crackdown on commodity financing could hit trade in the world’s top metal buyer.
The investigation at the world’s seventh-largest port is looking into whether single cargoes of metal were used multiple times to obtain financing, according to industry sources.
This means different banks and trading houses were holding separate titles for the same metal, they said.
The inquiry has revived worries about the impact of China’s deepening credit crunch on its metal imports, many of which pile up in warehouses to be used as collateral.
“Now the banks are all flying down to the port and literally, together with the warehouse people and traders, are physically counting the stocks,” said a source at a global trading company who visited the port this week.
Some traders were claiming the same cargoes, the source said.
Concern over what is happening at Qingdao has unsettled metal markets, though for now the investigation is known to center on a single trading company and firms related to it.
It remains unclear if the investigation signals the start of a wider probe, though checks with officials at other major Chinese ports such as Ningbo have said operations were normal.
Reflecting the concern, Standard Chartered has suspended new metal financing to some customers in China, sources said.
“Specific to this incident, Standard Chartered is reviewing metals financing to a small number of companies in China,” the bank said yesterday.
At least one other Western bank is reviewing its exposure to copper and aluminum financing, while a state-owned Chinese lender has sent a team to investigate, a source said.
Copper prices in London fell to their lowest in more than three weeks on Wednesday, partly on fears bankers would restrict access to credit. Prices steadied yesterday.
Most metal financing deals in China are done outside exchanges, with warehouse receipts used as proof of ownership. This is agreed by a bank or a trading house with a warehouse.
Global trading house Trafigura said this week it is following events in Qingdao.
On Wednesday, Standard Bank Group and a part-owned unit of Louis Dreyfus Corp, Singapore-listed GKE Corp, also warned of potential losses.
Authorities at the port have not officially confirmed a probe, and have said exports and operations were running normally. But Xinhua news agency said the port had said it was investigating whether iron ore warehouse receipts were fraudulently used multiple times to raise finance from different banks.
Sources also said some shipments of copper and aluminum into the port had been disrupted as a result of the investigation.
Traders estimated that 80,000 tons of aluminum and 20,000-45,0000 tons of copper with a combined value of US$285-460 million could be affected.
Qingdao Ports International, the main operator of the Port of Qingdao, and its controlling shareholder raised a combined HK$2.9 billion (US$374 million) in an initial public offering last week, according to sources. The stock is due to debut today.
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