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 $50 million.
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 comment Wednesday.
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 outside
China.
"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 weeks.
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 chuin-wei.yap@wsj.com and Enda Curran
at enda.curran@wsj.com
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