Energy & Resources

Missing metal

How does 300,000 tonnes of copper disappear?

Copper-Wires-w

Copper’s status as the ‘metal of electrification’ means that prices for the commodity are going to soar as we head into the carbon-zero era, its backers claim, because there won’t be enough supply to meet demand. But shortages of the red metal were a more pressing concern in the port of Qinhuangdao in northern Hebei this month, where the copper deficit has taken much more immediate effect.

Previous stories in WiC about shortfalls of copper at Chinese ports have focused more on situations in which traders have borrowed money against stockpiles that didn’t actually exist.

But in this instance the commodity does actually seem to have arrived in Hebei, before being collected without its owners’ consent.

Local newspapers are reporting a growing scandal in which more than Rmb6 billion (nearly $900 million) of copper concentrate – a raw material used in smelting – has gone missing from warehousing at the port. At least 13 traders say they are short of as much as 300,000 tonnes of concentrate, most of which seems to have disappeared over the last few months.

Stung by the risks of losses of billions of yuan from the missing stockpiles, the trading companies sent a team to Qinhuangdao in the middle of the month to investigate and plan a legal response, the Financial Times reported.

What seems to have happened is that two trading firms controlled by Liu Yu, a local businessman, had been turning up to collect the concentrate from the warehouses, despite lacking the proper paperwork. Liu, a frequent buyer of many of the shipments that go through the port, called up the freight forwarders that manage the warehouses and simply instructed them to release the goods.

Of course, in this case, it appears the concentrate wasn’t his to take.

Authorities at the port have distanced themselves from the situation, saying they don’t own the freight forwarders that gave up the goods and have no relationship with Liu himself.

Liu’s main company Huludao Ruisheng buys copper concentrate from overseas suppliers and stores it before distribution to Chinese smelters. His status as an important client of the port in Qinhuangdao gave him leverage with its service providers, claims China Business News, allowing cases in which he moved shipments without the permission of the owners before rectifying the trades at a later date. The newspaper reports that at an August 2 meeting with all the parties involved Liu “admitted [an executive present said] he usually just makes a phone call to ask the freight forwarding companies to release goods even though the service contracts state that they should verify the person’s identity and the delivery documentation”.

The practice finally came to light when he made a bullish bet on the direction of copper prices this year, which dipped dramatically in June. There are mixed reports about what happened next. China Business News reckons that Liu was desperate for cash to trade out of his losses, forcing him to sell even more of the copper concentrate owned by others. But Bloomberg reports that he had also borrowed heavily from a group of state-owned firms, backed by stockpiles of the concentrate. When the lenders heard whispers that Liu was in financial difficulties, they insisted on checking the collateral. They soon found that most of it was missing, with the wider investigation uncovering other irregularities at the port.

Surprisingly little is said across all the media sources about Liu’s background, save that he used to run procurement for a copper company before striking out on his own. He has made no public comments to any media either. Local newspapers do report the police have started an investigation. The FT reports that Glencore has stopped supplying metals to Huludao Ruisheng over the brewing scandal.

Perhaps we shouldn’t be too tough on Liu for getting his bet wrong on copper prices, however. Forecasters at Goldman Sachs have been similarly skittish, predicting in February that there would be a “scarcity episode” by year-end because of dangerously low inventories. Soon afterwards they warned of an all-time high in the copper price by the same deadline, because the market was “sleepwalking towards a stock-out”. These expectations were moderated in July, when the price fell to a 20-month low, and there has been another decline in August as prices drop again.


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