Qingdao metals fraud probe focusing on Decheng Mining

Banking sources say mining company's owner detained as part of metals fraud investigation

PUBLISHED : Thursday, 12 June, 2014, 1:48am
UPDATED : Thursday, 12 June, 2014, 1:48am

China's investigation of whether metals stockpiled at Qingdao Port fall short of collateral obligations used to secure loans is focused on Decheng Mining, said two bankers assisting with the probe.

Decheng's owner, Chen Jihong, has been detained by public security authorities amid the investigation at the northeastern port and a separate probe in northwestern Gansu province, said the bankers, who asked not to be named.

Investigators are trying to determine if Decheng used the same batches of copper and aluminium stored at the port as collateral to secure multiple loans, said the bankers. Their banks have extended credit to Decheng.

Any findings of wrongdoing at Qingdao risks undermining a broader practice in which traders in China use commodities from iron ore to rubber to get funding. Analysts at Barclays and Goldman Sachs Group have said the probe may weigh down the price of copper, already the worst performer among the six main materials traded on the London Metal Exchange this year.

The probe may affect metals stockpiles at Qingdao held by Citic Resources, the unit of China's largest state-owned company said on Tuesday.

Standard Chartered said last week it was reviewing financing to some companies in China and Standard Bank Group started looking at "potential irregularities" with metals at Qingdao. Citigroup said it would work closely with authorities and warehousing companies to resolve any problems for clients.

The Dagang area of the port has been sealed and gates are chained and padlocked, Reuters reported. The amount of metal involved in the probe was about 20,000 tonnes of copper, almost 100,000 tonnes of aluminium ingots and about 200,000 tonnes of alumina, Reuters said.

Jiangxi Copper, China's biggest smelter of the metal, said the problems at Qingdao do not represent a systemic risk and will not hurt demand or production of industrial metals.

Qingdao also handles iron ore and agricultural commodities including cotton and rubber.

Shanghai is China's biggest port and storage centre for industrial metals. Copper inventories in bonded zones in Shanghai were estimated to be about 815,000 tonnes in April by CRU, a London-based consultant.

The probe will make China's banks "extremely cautious" about financing deals, though lenders will still help fund shipments to end-users, said Colin Hamilton, Macquarie Group's head of commodities research.

Some copper may be moved from China to London Metal Exchange warehouses in South Korea, and possibly Singapore and Malaysia, said Jeremy Goldwyn, head of business development in Asia for Sucden Financial.