China’s reserve double-checks metal purchases

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Bloomberg Beijing

The Chinese agency that stockpiles strategic commodities was checking to ensure its copper purchases were free of collateral risks amid an investigation of metals at Qingdao Port, people with knowledge of the matter said yesterday.

The State Reserve Bureau bought at least 200 000 tons of copper from bonded storage areas in March and April, said the people, who asked not to be identified because they were not authorised to speak publicly about the information.

The agency joins banks including Standard Chartered, Citigroup and Standard Bank in reviewing potential fallout from Qingdao, where public security authorities are examining alleged fraud involving metals pledged as collateral to obtain loans. Copper futures in London fell for the first time in three days amid concern the probe will curb demand.

“The easing in copper prices is a continuation of the uncertainty enveloping the market in the wake of the China port inventory situation,” Gavin Wendt, the founder and senior resource analyst at Sydney-based Mine Life, said. “Externally there are positive indicators in terms of growth statistics, both in China and the US, but these are being overshadowed by what’s going on in terms of the port situation.”

An official at the State Reserve Bureau in Beijing, who would not provide his name because he was not authorised to speak to the media, declined to comment and referred inquiries to the press office of the National Development and Reform Commission. Nobody answered four calls and one fax to the commission, which oversees the State Reserve Bureau.

The contract for delivery in three months on the London Metal Exchange retreated as much as 0.4 percent to $6 665 (R71 543) a ton. Copper has lost 9.4 percent this year, making it the worst performer among the six main metals on the London Metal Exchange (LME).

Investigators were trying to determine if single batches of copper and aluminium stored at the port were used as collateral to secure multiple loans, bankers assisting with the probe told Bloomberg News earlier this week.

The customs agency had issued new rules to help prevent goods being pledged multiple times as collateral, people with direct knowledge of the matter said on Wednesday.

All transactions at bonded zones of the port had to be put on record at the Qingdao branch of the General Administration of Customs, effective July 1, said the people, who asked not to be identified because they were not authorised to speak publicly.

The probe might affect metals’ stockpiles at the north-eastern port held by Citic Resources Holdings, the trader controlled by China’s largest state-owned company said.

Metal owners were looking to shift stocks from China to LME sheds in South Korea and Taiwan, the Wall Street Journal reported.


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