By Dow Jones Business News,
June 18, 2014, 05:48:00 AM EDT
By Chuin-Wei Yap
BEIJING--China's state-owned Citic Resources Holdings Ltd. said about half of the alumina stockpiles it had stored
at Qingdao port couldn't be located, heightening concerns over the use of commodities for financing in the country.
Citic Resources, a mining and trading company, said earlier this month that it had applied to courts in Qingdao, a
port on China's eastern coast, to secure metals it owns in warehouses. Citic Resources' parent is Citic Group, one of
China's largest state-owned companies and a big financial concern.
Citic Resources, in a statement released Wednesday to the Hong Kong stock exchange, said Qingdao courts couldn't
locate 123,446 metric tons of alumina, a mineral used to produce aluminum. Citic Resources said it stored 223,270 tons
of alumina and 7,486 tons of copper at the port that was awaiting delivery to buyers. The company said it would now
conduct its own investigation into the missing commodities. At current market prices, the missing alumina is worth about
Qingdao courts didn't respond to calls for comment.
The statement came as Western and Chinese lenders are looking into suspected fraud in China involving metals that
were used as collateral. Banks have lent hundreds of millions of dollars to Chinese commodities traders in recent years,
using commodities such as copper, iron ore and aluminum as collateral.
Western lenders say they are trying to determine whether metals stored at Qingdao port as collateral against loans
were illegally pledged by a Chinese trading firm to more than one lender to obtain multiple loans. Banks that have made
loans backed by collateral in Qingdao port include Citigroup Inc. and Standard Chartered Bank PLC, according to
executives with Western banks. Both banks have acknowledged problems with collateral financing in China but have given
no further details.
Qingdao Port International Ltd. on June 6 said Chinese authorities were conducting a probe into metals stored at
the port. Chinese authorities haven't publicly commented on the probe. Port officials didn't respond to calls for
It isn't clear if Citic Resources' court order was linked to Decheng Mining Ltd., a Qingdao-based metals trader.
Bankers are looking into whether entities linked to Decheng illegally pledged the same stocks of commodities multiple
times as collateral to get loans from banks, according to executives at Western banks who made some of the loans.
Qingdao port's statement didn't name Decheng or any related companies. Attempts to reach officials at Decheng have
not been successful.
Meanwhile, foreign banks are pulling back on loans backed by collateral, according to Western bankers. Other banks
are seeking to secure additional protection from borrowers and moving collateral to more secure locations include ports
"Commodities financing for sure is going to have a rethink," said one executive at a Western bank involved in the
probe. "There aren't too many banks out there that are open for business."
Western bankers complain that they still can't access the storage facilities at Qingdao to check on the collateral
promised to them in return for loans. Banks say they also are concerned about collateral held at Penglai, another port
some 150 miles north of Qingdao. Inspectors for the banks were denied access to a warehouse at Penglai and had to take
photographs of aluminum stockpiles from outside the port's gates, according to a person familiar with the matter.
Copper prices on the London Metal Exchange shed 5% in the last two weeks on fears companies may have to sell
collateral to pay back loans, dumping metals onto the market. But prices have stabilized recently, rising 0.2% Tuesday
to close at $6,704 a ton. Prices in Shanghai have risen 1.3% so far this week, after falling 2.3% in the preceding two
Some analysts said the market was betting the problems in the sector are not widespread.
"Metal markets haven't been seriously affected by the news, as it seems for now that only some foreign banks are
affected," said Hou Jing, an analyst with Shanghai CIFCO Futures Ltd., a commodity trader.
Others say prices could fall again in the future if China's probe spreads to larger ports such as Shanghai.
"If news comes out that more copper has been pledged multiple times or the investigation against shadow banking is
widened to other ports, markets will certainly be jittery," said Helen Lau, an analyst at UOB Kay Hian.
Write to Chuin-Wei Yap at email@example.com and Enda Curran at firstname.lastname@example.org
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