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“It’ll all blow up. Or it’ll all blow over.” That was how the head of one LME brokerage summed up the possible repercussions of the situation in Qingdao at the end of the week.
The Qingdao reports began with word that authorities were blocking the shipment of some material from the Dagang terminal at Qingdao as they investigated the allegedly fraudulent use of warehouse receipts multiple times to raise finance.
The investigation focuses on allegations of double- or triple-pledged metal in bonded warehouses in the Dagang port terminal of Qingdao, whose shares have dropped after this week’s activities.
Traders holding alumina in Qingdao warehouses have been scrambling to understand what effect the investigation will have on their capacity to access their material.
The news has hit Chinese copper premiums, which initially dropped by as much as $25, and continued to drop throughout the week.
It has driven moves in the copper spreads: LME spreads eased even as the backwardation initially rose steeply on SHFE. SHFE spreads eased, though, as the week ended on Chinese traders lending back to the market material that they were unable or unwilling to finance in light of the clampdown on the financing of LCs and warehouse stocks by banks.
Here, Andrea Hotter considers the potential consequences for futures spreads and banks’ financing of commodities in China.
Standard Bank started investigating irregularities on Wednesday, and Standard Chartered began reviewing its financing of some Chinese companies
Lord Copper says we’ve seen this sort of fraud before, although its far-reaching consequences are a modern problem.
Credit was also a concern for a large stainless mill in China last week. Read more here.
The genesis of Vital Materials is also tied up with credit: its founder George Zhu thought that the company he was then working for could have made better margins by giving some credit, and dealing more directly, with consumers in China. He gave an in-depth interview to Metal Bulletin as commercial production ramps up at Vital’s $300-million plant in Guangdong. Read the exclusive story here.
A big smelter… Away from a port in northeastern China, construction of a $2.2-billion copper smelter in Indonesia is expected by the end of the year.
… and a big if? If the details of an export tax can be decided Indonesia’s ministry of trade is ready to issue export licences to the large companies that mine copper in the country.
But the possibility that licences would be issued did not prevent Newmont from declaring force majeure at its copper and gold mine in the country on Thursday.
Oversubscribed: a large trading company signed a large line.
Goldman Sachs’ warehousing firm Metro has been obeying LME rules that have not even been introduced yet. Read more on this link
The LME meanwhile said it would appeal against a ruling in the UK high court that forced it to stop introducing new warehouse rules in April. Find out about its decision here.
Metal Bulletin polled the market on how high aluminium premiums might rise this year. Here is the response.
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