Dalian Container Terminal Co Ltd (DCTL) allegedly delivered a total 925,000 tonnes of copper concentrates without the consent of the seven companies that had provided credit for the import of those concentrates cargoes, the Dalian Maritime Court of the People’s Republic of China (PRC) said.
Creditors, according to the publicly available claims, had not authorized the release of that material.
The delivery of copper raw material was carried out in more than 50 batches between June 15 last year and March 5 this year from the warehouses of DCTL, according to one of the court documents on the case.
With creditors now in dispute about ownership of those cargoes, participants in China's copper raw materials market are concerned that the courtroom wrangling will further tighten credit availability for moving physical cargoes at a time when prices have risen markedly.
From July 2020 to March 2021, the three-month copper price on the London Metal Exchange rose by 46.8% to $8,809.5 per tonne from $6,056 per tonne.
The spike sent procurement costs for copper smelters rapidly higher; copper concentrate has been highlighted by the Chinese government as one of the commodity products with the biggest increases in import costs in the first quarter of 2021.
Cargoes of commodities such as copper are often high in value - a standard-sized cargo of 10,000 tonnes of copper concentrate costs more than $23 million at today's prices.
Traders, producers and industrial buyers of these raw materials therefore rely on banks and other credit providers to finance the shipment of these cargoes from origin to destination - and when warehoused - rather than tying up large sums of working capital to transport a single parcel.
The business of providing letters of credit (LCs), which show a counterparty that the holder has financing in place for the transaction, is especially common in China, particularly at industrial companies such as smelters.
Responsible for the safe storage of the strategic copper raw material, DCTL, the subsidiary of the Hong Kong-listed Dalian Port (DPA), now faces requests to either return the delivered copper concentrate or to compensate for the nominal value of the copper concentrate to these companies.
DCTL has yet to respond to multiple requests for comment.
Some of the creditors are state-owned enterprises - Zhejiang Materials Industry International Co Ltd (ZMI) and its subsidiary, Zhejiang Metals and Materials Co Ltd (ZMMC), are two of China’s largest sellers of steel products and iron ore.
To protect the rights of the claimants, the Maritime Court of Dalian court ruled earlier this year to freeze at least 690 million yuan worth of DCTL’s assets.
A ruling on April 12 showed that the court had issued an order to freeze 339.7 million yuan its assets for one of its creditors, Fujian Rongjiang Import and Export Corp.
In a separate ruling on April 9, the court accepted another request from another creditor, Qingdao Kaitou Supply Chain Management Co Ltd, to freeze 350 million yuan of DCTL assets.
All the plaintiffs had signed agreements with a local trading and logistics company called Sound (Dalian) Supply Chain Management Co Ltd to open LCs for shipping copper concentrate, according to the June 23 court document.
Sound had entered into an agreement to store the imported copper concentrates at DCTL’s warehouse from April 2020 to December 2021, according to the court document.
Subsequently, DCTL warehouse accepted multiple requests from Sound for delivery of copper concentrate after Sound presented 41 letters of guarantee that provided security of 400 million yuan as well as two separate letters of commitment, according to the court document.
“It is estimated that DCTL’s compliance with Sound’s requests to deliver copper concentrate could bring a total economic loss of 944 million yuan to DCTL,” according to the court document.
“Based on the storage agreement, letters of guarantee, and letters of commitment, Sound should be responsible for compensating the mentioned loss incurred by DCTL,” the Dalian Maritime Court ruled.
It ruled in favor of DCTL’s request last month to freeze 300 million yuan of assets and cash belonging to Sound chairman Yin Li and the company itself.
ZMI and ZMMC, Fujian Rongjiang, Qingdao Kaitou and Sound have not responded to Fastmarkets’ multiple requests for comment via email last week and earlier this week.
Tight copper concentrate market
Supply of copper concentrate was particularly tight in the first quarter of the year due to disruptions in Chile and Peru in January and February, prompting more smelters to buy tonnages on the spot market.
During the first three months in 2021, Fastmarkets copper concentrate treatment charge/refining charge (TC/RC) index dropped by 48%.
The copper concentrates TC index, cif Asia Pacific has rebounded since April - it was calculated at $36.0 per tonne/3.6 cents per lb on June 25.
Seven creditors have sued a Chinese warehousing and logistics firm to claim a loss of copper concentrate worth 1.073 billion yuan ($166 million), according to several court documents, the latest of which was released on June 23.