Legal fight chills metal trade after Qingdao port probe
HSBC joins the queue of global banks and trading houses in launching suits over their exposure to suspected financing fraud at Qingdao port
As global banks and trading houses fire off lawsuits over their estimated US$900 million exposure to a suspected metal financing fraud on the mainland, the tangled legal battle to recoup losses is set to drag on for years and hinder a swift recovery in metal trade.
Several banks had already ditched their commodity trading divisions due to low returns. The scandal, centred on Qingdao port, means those remaining in the commodity financing business will have to consider their future, or at least bring in new controls on lending requirements.
It has also acted as a warning over murky business practices on the mainland and highlighted the difficulties of navigating the country's legal system for foreign firms, some of which have since frozen new financing business.
"In the next six to 12 months, the impact would likely be reduced appetite for lending on metal collateral," said Daniel Kang, Asia head of basic materials equity research at JP Morgan. "Copper imports may come under pressure in the second half, partly related to smaller traders going bankrupt."
Mainland imports of refined copper, the most widely used metal in financing, fell 8 per cent in June from a year earlier to a 13-month low as banks reduced lending for metals imports following the Qingdao probe, which was first reported at the start of that month.