(Adds Qindao port comment in paragraphs 12-14)
* Copper cargoes shipped out from Qingdao to LME
* Qingdao Port shares close at HK$3.71 vs IPO price of
* London copper prices fall to 1-month low on Friday
* Trading houses, banks sent execs to port to physically
By Fayen Wong and Melanie Burton
QINGDAO, China/SYDNEY, June 6 Some copper
cargoes held at China's Qingdao Port were being shipped to more
regulated LME warehouses, industry sources said, as banks and
trading houses took precautions over a probe into metal
financing at the world's seventh-busiest port.
Shares in China's Qingdao Port International Co Ltd
, the main operator, also weakened in their Hong Kong
trading debut as investors responded cautiously.
The investigation is looking into whether single cargoes of
metal were used multiple times to obtain financing, according to
industry sources. Trading houses and banks have sent executives
to the port to physically check on their exposure, while some
banks have stopped new metal financing to some clients in China.
Jeremy Goldwyn, a director at brokerage Sucden Financial,
said some customers at the port were likely to ship metal out to
more regulated London Metal Exchange (LME) warehouses "in a
classic flight to quality".
"Indeed, we hear metal is already en route to Korean LME
locations," added Goldwyn. The LME licenses warehouses all
around the world including in South Korea, Singapore and Taiwan
in Asia, but is not permitted to have warehouses in China.
Traders said holders of copper in Qingdao that were having
difficulty obtaining finance could also be forced to deliver to
LME warehouses in East Asia to raise capital.
Ships carrying 10,000-20,000 tonnes of copper from Qingdao
would arrive in South Korea over the coming weeks, one physical
trader in Singapore estimated.
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 LME licenses warehouses and monitors
stocks held in exchange inventories.
COPPER UNDER PRESSURE
London copper prices fell to the lowest in a month
on Friday, as concerns over the probe continued to take a toll.
"You're seeing material being sold for two reasons - because
those financing deals are being unwound, and people who picked
up material purely on a speculative basis will take profit now,"
one Singapore trader said.
Qingdao Port said in a statement on Friday it had been asked
by China's Public Security Authority to help with an
investigation relating to aluminium and copper products under
the name of a third-party cargo shipment agency on behalf of a
It did not name the cargo owner or the shipment agency, and
said Qingdao had not been party to the agreement between the
two. The metal had merely been stored at its Danang branch.
It did not say how much metal was involved, but said it was
was an "immaterial proportion" of its total annual throughput.
It also said none of the company's employees were under
Qingdao Port International is the primary operator, handling
about 76 percent of the port's total cargo last year.
"Everything in Qingdao port is running normally," the
operator's chairman, Zheng Minghui, told reporters at the
company's listing ceremony at the Hong Kong stock exchange but
declined further comment.
Its shares ended down at HK$3.71 on Friday compared to their
IPO price of HK$3.76.
International and Chinese banks have been forced to make
urgent checks on the situation at Qingdao.
Standard Chartered has suspended new metal
financing to some customers in China, three sources familiar
with the matter said.
The bank said on Friday its commodity financing business
remained a key focus area and it would continue to support its
clients. "We recognise that there are currently issues in China
around commodity financing which we are monitoring."
Citigroup Inc is among banks financing copper on
behalf of clients at the port, according to people familiar with
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."
A head of trade finance at a South East Asian bank said the
bank was not accepting warehouse receipts from Qingdao for the
moment but would accept them from LME locations or Shanghai.
He also said that metal financing was likely to continue but
in tighter collateral management agreements (CMA) signed by a
bank, trading company and warehouse. This is likely to be more
expensive than many of the current agreements, which are only
based on warehouse receipts.
"The responsibilities of a CMA are very well spelled out in
black and white," said the trade finance head.
(Additional reporting by Elzio Barreto, Lawrence White and
Polly Yam in HONG KONG and Susan Thomas in LONDON; Writing by Ed
Davies; Editing by Muralikumar Anantharaman)