Global trading houses and banks are scrambling to check on their exposure to a probe into metal financing at China's Qingdao port, as concerns intensify that a crackdown on commodity financing could hit trade in the world's top metal buyer.
The investigation at the world's seventh-largest port is looking into whether single cargoes of metal were used multiple times to obtain financing, according to industry sources.
This means different banks and trading houses were holding separate titles for the same metal, they said.
The inquiry has revived worries about the impact of China's deepening credit crunch on its metal imports, many of which pile up in warehouses to be used as collateral.
"Now the banks are all flying down to the port and literally, together with the warehouse people and the traders, are physically counting the stocks," said a source at a global trading company who visited the port this week.
"When we were there we did hear a couple of traders holding the same title. One was saying that one (cargo) belongs to me the other trader said it belongs to him. They had the same document."
Concern over what is happening at Qingdao has unsettled metal markets, although for now the investigation is known to centre on a single trading company and firms related to it.
It remains unclear if it signals the start of a wider investigation by Chinese authorities into metal financing, although checks so far with officials at several other major Chinese ports such as Ningbo have said operations were normal.
Reflecting concern among banks, Standard Chartered has suspended new metal financing to some customers in China, three sources familiar with the matter said.
The bank, which has been monitoring the situation at Qingdao, said on Thursday: "Specific to this incident, Standard Chartered is reviewing metals financing to a small number of companies in China."
At least one other Western bank with operations in China is reviewing its exposure to copper and aluminium financing, a source with direct knowledge said.
New York-based Citigroup is among banks financing copper on behalf of clients at the port, according to people familiar with the situation.
In a statement to Reuters, the bank said: "To the extent Citi's clients are affected, Citi will work closely with the relevant authorities, warehousing companies and clients to resolve the matter."
The risk of losses likely varies between banks, depending on whether they lent to a trading firm believed to be directly involved with any alleged fraud, or to clients who owned metal at the port and are able to cover any losses, said a person who had been briefed on the U.S. bank's situation.