* Chinese state-owned bank sends team to Qingdao port-source
* Banks, traders, warehouse officials comparing paperwork
* Investigation into metal financing hits copper prices
* Concern among banks over broader ramifications
(Updating to add details about Citigroup in paras 12-14)
By Melanie Burton and Polly Yam
SYDNEY/HONG KONG, June 5 Global trading houses
and banks are scrambling to check on their exposure to a probe
into metal financing at China's Qingdao port, as concerns
intensify that a crackdown on commodity financing could hit
trade in the world's top metal buyer.
The investigation at the world's seventh-largest port is
looking into whether single cargoes of metal were used multiple
times to obtain financing, according to industry sources.
This means 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 down to the port and
literally, together with the warehouse people and the traders,
are physically counting the 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
Concern over what is happening at Qingdao has unsettled
metal markets, although for now the investigation is known to
centre on a single trading company and firms related to it.
It remains unclear if it signals the start of a wider
investigation by Chinese authorities into metal financing,
although checks so far with officials at several other major
Chinese ports such as Ningbo have said operations were normal.
Reflecting concern among banks, Standard Chartered
has suspended new metal financing to some customers in China,
three sources familiar with the matter said.
The bank, which has been monitoring the situation at
Qingdao, said on Thursday: "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 is
reviewing its exposure to copper and aluminium financing, a
source with direct knowledge said.
New York-based Citigroup Inc is among banks financing
copper on behalf of clients at the port, according to people
familiar with the situation.
In a statement to Reuters, the bank said: "To the extent
Citi's clients are affected, Citi will work closely with the
relevant authorities, warehousing companies and clients to
resolve the matter."
The risk of losses likely varies between banks, depending on
whether they lent to a trading firm believed to be directly
involved with any alleged fraud, or to clients who owned metal
at the port and are able to cover any losses, said a person who
had been briefed on the U.S. bank's situation.
Concern over the situation has extended to domestic banks. A
Chinese state-owned bank has sent a team from head office to
Qingdao to investigate trade financing problems, said a source
with direct knowledge of the situation.
Copper prices in London fell to their lowest in more
than three weeks on Wednesday, partly on worries that bankers
would restrict access to credit for financing deals after the
probe. Prices steadied on Thursday.
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 Trafigura said this week that
the trading house was following events at the port and gathering
On Wednesday, Standard Bank Group and a part-owned
unit of Louis Dreyfus Corp, Singapore-listed GKE Corp
, also warned of potential losses.
"Standard Bank Group is not yet in a position to quantify
any potential loss arising from these circumstances," it said.
IRON ORE RECEIPTS
Authorities at the port in northeast China have not
officially confirmed an investigation, and have said exports and
operations were running normally.
But Xinhua news agency said the port had said it was
investigating whether iron ore warehouse receipts were
fraudulently used multiple times to raise finance from different
Trading and warehousing sources also said some shipments of
copper and aluminium into the port had been disrupted, relating
to the investigation.
Traders estimated 80,000 tonnes of aluminium and
20,000-45,0000 tonnes of copper with a combined value of
$285-$460 million could be affected by the investigation.
According to traders and warehousing sources, port
authorities at Qingdao's Dagang wharfs have been examining
cargoes of metal tied to a trading company and linked firms.
Qingdao Ports International, the main operator of
the Port of Qingdao, and its controlling shareholder raised
a combined HK$2.92 billion ($377 million) in an initial public
offering last week, according to sources. The stock is due to
debut on Friday.
(Additonal reporting by Manolo Serapio in Singapore, Polly Yam,
Xiaowen Bi and Hongmei Zhao in Hong Kong, Ruby Lian in Shanghai,
Susan Thomas in London and David Henry in New York; Editing by
Ed Davies, Mike Collett-White and Bernard Orr)