China probes dubious metal financing

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Copy of PEK08_CHINA-QINGDAO-_0605_11 Reuters Metals are delivered by tanker at Qingdao port, China. A probe has been launched into financing of commodity shipments at the facility after reports that single cargoes of metal were used multiple times to obtain trade financing. Photo: Reuters

Global trading houses and banks, including Standard Bank, are scrambling to check on 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.

Industry sources said the investigation at the world’s seventh-largest port was looking into whether single cargoes of metal were used multiple times to obtain financing.

This meant 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 to the port and literally, together with the warehouse people and the traders, are physically counting stocks,” said a source at a global trading company who visited the port this week.

“When we were there we did hear a couple of traders holding the same title. One was saying that one (cargo) belongs to me the other trader said it belongs to him. They had the same document.”

Concern over what was happening at Qingdao has unsettled metal markets, although for now the investigation centres on a single trading company and related firms .

It remains unclear if it signals the start of a wider investigation by authorities into metal financing, although officials at several other major Chinese ports such as Ningbo said operations were normal.

Reflecting concern among banks, Standard Chartered had suspended new metal financing to some customers in the country, three sources familiar with the matter said.

The bank, which has been monitoring the situation at Qingdao, said yesterday: “Specific to this incident, Standard Chartered is reviewing metals financing to a small number of companies in China.”

At least one other Western bank with operations in China was reviewing its exposure to copper and aluminium financing, a source said.

Concern over the situation has extended to domestic banks. A Chinese state-owned bank had sent a team from head office to Qingdao to investigate trade financing problems, a source said.

On Wednesday, copper prices in London fell to their lowest in more than three weeks, partly on worries that bankers would restrict access to credit for financing deals after the probe. Prices steadied yesterday.

Most metal financing deals in China are done outside exchanges, and in those deals warehouse receipts are used as proof of ownership of metal. This is agreed typically by a bank or a trading house with a warehouse.

In contrast, in some other developed financial centres there is greater oversight. The London Metal Exchange licenses warehouses and monitors stocks held in exchange inventories.

A spokesman for commodities trading and logistics company Trafigura said this week that the trading house was following events at the port and gathering information.

On Wednesday, JSE-listed Standard Bank and a part-owned unit of Louis Dreyfus, Singapore-listed GKE, also warned of potential losses.

“Standard Bank is not yet in a position to quantify any potential loss arising from these circumstances,” it said. - Reuters


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