China’s Reserve Said Checking Copper Purchases Amid Probe

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

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

The agency joins banks including Standard Chartered Plc, Citigroup Inc. and Standard Bank Group 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 that the probe will curb demand for the metal.

“The easing in copper prices is a continuation of the uncertainty enveloping the market in the wake of the China port inventory situation,” said Gavin Wendt, founder and senior resource analyst at Sydney-based Mine Life Pty. “Externally there are positive indicators in terms of growth statistics, both in China and the U.S., 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 wouldn’t provide his name because he isn’t authorized to speak to 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 NDRC, which oversees the State Reserve Bureau.

Benchmark Prices

The contract for delivery in three months on the London Metal Exchange retreated as much as 0.4 percent to $6,665 a ton and was at $6,667 at 2:03 p.m. Shanghai time. Copper has lost 9.4 percent this year, making it the worst performer among the six main metals on the LME.

On the Shanghai Futures Exchange, copper for delivery in August slid 0.6 percent to 47,580 yuan ($7,646) a ton.

Investigators are trying to determine if single batches of copper and aluminum 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 has issued new rules to help prevent goods being pledged multiple times as collateral, people with direct knowledge of the matter said yesterday.

All transactions at bonded zones of the port must 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 are not authorized to speak publicly.

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

Metal owners are looking to shift stocks from China to LME sheds in South Korea and Taiwan, the Wall Street Journal reported, citing people at warehouse companies.

— With assistance by Steven Yang, and Alfred Cang

(Updates with comment on copper prices in 4th paragraph.)
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