NEW YORK (Reuters) - Freepoint Commodities has started trading physical base metals betting on growing demand in China, a senior executive said, as a financing scam forces some banks to scale back business in the world’s top consumer.
Just over two years after the upstart commodities merchant’s first foray into the niche copper and zinc concentrates markets, global metals trading chief Philip Bacon has launched a push into handling refined metals, he told the Reuters Commodities Summit this week.
The emphasis is on Asia, in particular China, he said.
The move marks the latest expansion by the Stamford, Connecticut-based firm to build a physical commodities business since it was set up four years ago by former Sempra oil executives.
Freepoint entered the metals trading in 2012 when it bought JPMorgan Chase & Co’s (JPM.N) metals concentrates trading unit which was run by Bacon. Concentrates are a type of intermediate product that smelters use as raw material to make refined metals.
That deal reunited Bacon with his former Sempra compatriots and former Sempra boss David Messer, who is now Freepoint chief.
Out of the firm’s 250 staff, about 30 full-time employees are in the base metals business, which includes the structured finance and trading operations.
The move also comes as the metal industry reels from the high-profile financing scam in China’s Qingdao port that involved metal being used multiple times as collateral for loans.
The scandal has tightened credit and left some banks and trading firms exposed to more than $1.2 billion in losses, forcing some to wind up or stop financing deals altogether.
Freepoint was not involved in those so-called repo deals which give companies access to short-term credit in exchange for goods, and is not affected by the Qingdao scandal, Bacon said.
“(Qingdao) has repercussions right across the board. I think the banks have withdrawn because of the fear factor,” he said.
The retreat has deflated copper premiums, which were bolstered for years by the buying interest from these financing deals.
“That model of financing is coming to an end. It will return the market more to the fundamentals,” he said.
Reporting by Josephine Mason; Editing by Lisa Shumaker