China’s investigation of whether metals stockpiled at Qingdao Port fall short of collateral obligations used to secure loans is focused on Decheng Mining, said two bankers assisting with the probe.
Decheng’s owner, Chen Jihong, has been detained as public security officials look into the case at the northeastern port and continue a separate inquiry in northwestern Gansu province, said the bankers, who asked not to be named because they aren’t authorized to speak publicly. Singapore’s foreign ministry said it is providing consular assistance to Chen.
Foreign and local banks are examining lending linked to metals at Qingdao amid concern that risks are more widespread in China, where traders use commodities from iron ore to rubber to get funding. China’s customs agency issued rules to help prevent goods being pledged multiple times as collateral for loans at Qingdao Port, said two people with direct knowledge of the matter. Analysts at Barclays Plc and Goldman Sachs Group Inc. said the probe may weigh down the price of copper, already the worst performer among the six main materials traded on the London Metal Exchange this year.
All transactions at bonded zones of Qingdao port must be put on record at the Qingdao branch of the General Administration of Customs, effective July 1, according to the people. Documents including warehouse storage agreements, packing lists, sales contracts and invoices must be provided and companies that sell goods from the zone more than once must also be registered there, they said.
Chinese authorities will conduct a “deep” investigation into copper, iron ore and palm oil trading companies following the probe at Qingdao, the Futures Daily reported today, citing Cheng Xiaoyong, an assistant to head of the research institute of Baocheng Futures. Red Kite Group, the asset manager overseeing more than $2.3 billion, said concern over the investigation will probably ease because further issues haven’t been reported for more than a week.
Officials in Qingdao at Decheng’s parent company, Dezheng Resources Holding Co., declined to comment when called on three separate occasions this week and last week.
Two calls to Qingdao’s public security office today were unanswered. Officials in Gansu asked for questions to be faxed. There was no response to the fax.
Nobody answered a call to a mobile phone number listed as belonging to Chen Jihong in a filing on the Singapore government’s registry for Zhong Jun Resources Pte. The company’s website says it is affiliated to Dezheng.
Investigators are trying to determine if Decheng used the same batches of copper and aluminum stored at the port as collateral to secure multiple loans, said the bankers. Their banks have extended credit to Decheng.
Copper fell 0.2 percent to $6,665.25 a metric ton by 1:23 p.m. on the London Metal Exchange.The metal touched $6,628 yesterday, the lowest level since May 7.
“In the physical world, metals financing has dried up completely for many smaller and/or newcomer importers and rates have risen for pretty much anyone who can still obtain credit,” Vivienne Lloyd, an analyst at Macquarie Group Ltd. in London, said in a report e-mailed today. “Given the financing difficulties for many holders of metal, we expect a continuance of the outflows from the bonded zones that began last week.”
Copper stockpiles in bonded warehouses in China could decline by about 290,000 tons through September to about 600,000 tons, Macquarie estimates. Most of the metal will be shipped to LME warehouses, where some would continue to be used as collateral and some could be sold. A sustained drop below $6,500 is unlikely as a substantial amount of copper financing is set to continue, the bank said.
— With assistance by Alfred Cang