Copper premiums in Shanghai continued to fall on Wednesday June 4 with offer prices dropping as low as $90 per tonne on a cif basis as the probe into the use of metal for collateral in Qingdao pushed buyers to the sidelines.

Stocks of copper in China are largely stored in bonded warehouses in Shanghai. For the moment Chinese authorities are indicating that the investigation into alleged credit fraud centres on Qingdao, but market participants are reluctant to assume that other areas will be spared scrutiny.

The backwardation in nearby copper spreads on the Shanghai Futures Exchange has steepened as market participants cover shorts fearing that stocks could be frozen if evidence fraud is uncovered.

http://www.metalbulletin.com/Article/3348596/Base-metals/LME-copper-spreads-ease-and-SHFEs-tighten-on-Qingdao-probe.html

“Nobody wants to take bonded cargoes now, not only in Qingdao, but also in Shanghai,” one Shanghai-based physical trader told MB.

“Even though the offer price has fallen to $90 per tonne overnight, it is still not attractive.”

The cif premium fell to $100-105 per tonne on Tuesday from $120-130 on Monday on concerns about double- and triple-pledging of material were exposed, and the authorities launched a probe into the Dagang bonded warehouse zone in Qingdao.

“All the banks and trading companies are busy checking their stocks now,” a second trader who has direct knowledge of Qingdao’s probe said.

“Banks and trading companies held an emergency closed-door conference last Thursday. After that, they started to check their stocks to minimise losses.”

“We are also counting our stocks in bonded warehouse now. Before the internal examination, I am not going to make further purchase,” she said.

“I think banks will be more careful and they will not be doing new business before the investigation.”

A third trader told MB that they delayed their ocean shipped cargo into bonded warehouse as “everyone wants to avoid the words ‘warehouse receipt’.”