* Says probe may hit metal it owns at China's Qingdao port
* Shares plunge more than 8 perent to lowest this month
* Other global banks and trade houses also caught up in
* Scandal has raised broader worries about metal financing
(Adds second Chinese port denying affected by probe, context,
By Donny Kwok and Melanie Burton
HONG KONG/SYDNEY June 10 CITIC Resources
Holdings Ltd said on Tuesday that metal it owns at Qingdao port
may be affected by a probe into suspected fraud, the latest firm
caught up in a scandal that has raised broader worries about the
risks of metal financing in China.
The probe at the Chinese port, where a third-party firm is
suspected of using single cargoes of metal multiple times to
obtain financing, has also shaken markets amid fears the
problems could extend to other ports and force a crackdown on
using metal as collateral for finance.
The investigation into the status of aluminium and copper
products stored at the world's seventh-biggest port may hit the
group, CITIC Resources said, sending its shares down
by more than 8 percent to their lowest since May 7.
The firm said it has sought a court order in Qingdao to
secure its metal assets.
CITIC Resources is the commodities trading unit of China's
biggest and oldest state-owned financial conglomerate company,
CITIC Group Corp. Singapore sovereign wealth fund Temasek
Holdings also holds an 11.46 percent in the unit.
"At present, the status of the investigation is unknown to
the group," chairman Kwok Peter Viem said in a filing to the
Hong Kong stock exchange.
"Until the status of the investigation is clarified, the
company is not able to accurately assess its impact on the
group's alumina and copper stored at Qingdao port or on the
group itself," Kwok added.
Banks and trading houses have been checking their exposure
to the port and others to see if they are at risk from the
issuing of fake receipts.
China's metals sector could have its access to funding
squeezed and copper prices could come under renewed pressure if
new cases arose.
CITIC joins Standard Bank Group and a part-owned
unit of Louis Dreyfus Corp, Singapore-listed GKE
Corp., which warned last week of potential losses.
Standard Chartered has said it is reviewing metals
financing to a small number of companies in China while Citi
Group said it would work closely with authorities,
warehousing companies and clients to resolve any issues.
SECOND PORT DENIES PROBLEMS
Pledging commodities to a bank, often using a warehouse
receipt as proof of ownership, has become a popular way of
raising finance in China, often to skirt restrictions on raising
credit and helping drive up stockpiles at some ports.
The Wall Street Journal, citing people familiar with the
matter, reported Western banks were concerned that a potential
fraud has flared up at a second Chinese port, Penglai, also
located in Shandong province,
A port official told Reuters they were not affected by the
investigation at Qingdao and business was normal. The official
said Penglai Port owned the bonded metal warehouses, rather than
them being managed by a third-party warehouse firm or operators.
But while the problems at Qingdao may be an isolated case,
questions have begun to play on the minds of traders and bankers
doing business in the world's largest raw material importer into
whether material they believe they own is secure.
Concerns over the events in Qingdao may push foreign banks
to cut their commodity financing business in China, Goldman
Sachs said in a note on June 9.
"We believe the developments in Qingdao are likely to
continue the significant scaling back of FX inflows from foreign
banks into China via commodity financing business."
In March, the bank estimated commodity finance deals in
China were worth as much as $160 billion, or about 31 percent of
the country's total short-term foreign exchange loans.
COPPER PRICES AT ONE-MONTH LOW
To protect its interests, CITIC said it had applied to the
Qingdao courts on June 3 to obtain sequestration orders in
respect of the group's alumina and copper. It did not elaborate.
China's Qingdao Port International Co. Ltd. said
last week it was assisting in the investigations on fraud
related to metal financing but neither the company nor its
employees were implicated.
It said its Dagang branch was asked by the Public Security
Authority, China's police and security administration, 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 cargo owner.
Prices of copper have fallen to one month lows since news of
the investigation broke last week, while premiums paid for
physical metal in Shanghai have nearly halved.
According to industry sources, traders have shipped out some
metal from Qingdao Port to more regulated London Metal Exchange
warehouses in the region to cut risk and raise funds.
Benchmark LME copper traded just above one month
lows of $6,636 a tonne on Tuesday, but analysts and traders warn
that the market remains vulnerable to the risk of the Qingdao
probe triggering a wider unwinding of financing deals.
(Additional reporting by Melanie Burton in SYDNEY and Fayen
Wong in SHANGHAI.; Editing by Ed Davies and Amran Abocar)