China’s Copper Imports Fall as Financing Deals Unwind

China’s copper imports dropped to the lowest since April last year as demand for the metal as collateral to obtain credit eased amid a probe at Qingdao Port.

Inbound shipments of unwrought copper and copper products fell to 350,000 tons in June, a 7.9 percent decline from the previous month, according to data released by customs today.

Weaker demand from China, the world’s biggest user, may weigh on benchmark copper futures in London, which have retreated 3.3 percent this year. Prices will slide during the next six to 12 months as production costs drop, China’s property sector weakens and commodity financing unwinds following the investigation at Qingdao, Goldman Sachs Group Inc. said July 8.

“The imports drop is evidence of waning demand for the metal as the investigation into metals warehousing in Qingdao has made banks reluctant to offer financing,” said Tetsu Emori, a fund manager at Astmax Asset Management in Tokyo.

The probe focusing on allegations that Decheng Mining pledged stocks of copper, aluminum and alumina at the port multiple times to obtain loans risks undermining the broader practice known as commodity financing, in which traders use raw materials as collateral. Lenders are tightening commodity-backed financing criteria following the investigation.

Copper prices in London slid to a six-week low on June 12, while in Shanghai futures fell to a one-month low on June 9, as details of the probe emerged.

Benchmark Futures

The contract for delivery in three months on the London Metal Exchange was little changed at $7,116.50 a ton at 12:48 p.m. in Hong Kong. Futures for delivery in September dropped 0.7 percent to 50,560 yuan ($8,156) a ton on the Shanghai Futures Exchange.

China’s total imports rose 5.5 percent in June from a year earlier, less than the median estimate of 6 percent in a Bloomberg News Survey of economists. Exports gained 7.2 percent, trailing the median projection of 10.4 percent.

Weaker-than-anticipated trade compounds threats to the world’s second-largest economy from a property slump and rising debt, putting pressure on the Communist Party to consider stronger stimulus.

Copper in bonded warehouses in Qingdao fell 40 percent to 30,000 tons by July 4 from early May, according to CRU Group, a London-based metals consultancy. The impact from the investigation will be felt more in July trade data, said Angela Bi, an analyst at Macquarie Group Ltd..

“It takes time for traders to cancel shipments, so in July the imports will be under pressure,” she said.

LME Warehouses

Copper stocks at LME-tracked warehouses in South Korea climbed to a seven-month high at 11,700 tons yesterday from 2,425 tons at the start of June, according to bourse data. LME depots in the nation are the delivery points closest to Shanghai, where most of the copper in Chinese bonded storage is kept.

The Qingdao investigation will not disrupt the copper market, Morgan Stanley said July 8, adding it doesn’t believe inventory financing behavior will have any lasting effect on supply and demand fundamentals.

Imports of iron ore, a steel-making ingredient, were 74.57 million tons in June, down 3.6 percent from May, according to customs data today.

Iron ore for immediate delivery into China’s Tianjin Port fell to $89 a dry ton on June 16, the lowest level since September 2012, according to the Steel Index Ltd.

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