Heavy rains caused unprecedented delays in planting this year and contributed to record floods across the central United States.Agricultureread more
Although Cook did not mention companies by name, his commencement speech in Silicon Valley's backyard mentioned data breaches, privacy violations, and even made reference to...Technologyread more
U.S. ambassador to Israel David Friedman called the gesture a "birthday present" to Trump, who turned 73 on Friday.Politicsread more
Organizers claimed that nearly 2 million Hong Kong protesters took to the streets Sunday in a rally to demand the city's top official resign a day after she suspended — but...China Politicsread more
Target's registers were down on Saturday for several hours preventing customers from checking out.Retailread more
In the survey, 66% of Democratic primary voters say they'd be enthusiastic or comfortable about Biden as their nominee to take on President Trump in the 2020 election. Just...Politicsread more
The Fed is not likely to make a move on interest rates when it meets next week, but it should clear the way for a rate cut later in the summer.Market Insiderread more
Representatives from the Chinese side say they think it likely that Chinese President Xi Jinping will attend the G-20 meeting later this month. But in order to reach a trade...China Economyread more
With uncertainty keeping a lid on U.S. stocks, Ed Clissold of Ned Davis Research says the rest of 2019 is likely to be a "choppy," but somewhat opportunistic, ride for...Futures Nowread more
You can save money by doing a quick check and unsubscribing from apps you no longer use.Technologyread more
Software engineers straight out of college often make six-figure salaries, not counting equity compensation.Technologyread more
A warehouse fraud at China's third-largest port has forced banks and trading houses to consider new controls in the country's massive commodity financing business, which traders say could lead to drying up of credit for all but large firms and state-owned companies.
On Thursday, Standard Chartered Bank, a major foreign provider of such finance deals, become one of the first firms to put a dollar figure on its activities, saying its commodity-related exposure around the port was about $250 million, although not all of that was at risk.
"That is across multiple clients, multiple locations, multiple types of facilities, not all of which will be affected," Chief Executive Peter Sands said on a conference call.
China's commodities trading is dominated by the large and state-owned companies but there are thousands of small firms in the market. Faced with tougher bank requirements for financing, they could sell down stockpiles, squeezing demand for metals and other raw materials such as rubber in the world's biggest consumer of commodities.
Any new requirements would also ratchet up the risk that customers who do not regain credit lines may default on payments for services such as hedging, or for imports.
"The fear is not so much about the big boys, but some of the other smaller, newer players, who may have only been in this commodity financing game for the last two to three years," said Jeremy Goldwyn, a director with commodities broker Sucden in charge of Asia business.
"If all of a sudden the tap is turned off to them, they might have more of a crisis. Is it having an effect on the market? Yes, people are very nervous. We obviously have a lot of business in China so we are watching it very closely," he said.
According to sources, Standard Chartered Bank has suspended some commodity financing deals in Qingdao port after authorities there launched a probe into a private trading firm, Decheng Mining, that is suspected of duplicating warehouse certificates to use a metal cargo multiple times to raise financing.
A Standard Chartered spokesman in London said the bank was reviewing its exposure to commodity financing but was not "pulling back" from that type of business, or from China itself, which remains a "key market".
For Western banks such as Standard Chartered, HSBC and BNP Paribas, which are restricted in the domestic loan market in China, the metals financing business is a lucrative alternative but the Qingdao scandal has renewed focus on counterparty risk.
Goldman Sachs estimates that commodity-backed deals account for as much as $160 billion, or about 30 percent of China's short-term foreign-exchange borrowing.
Besides metals, the banks are now taking a fresh look at loans backed by other commodities such as iron ore, soybeans and rubber, fueling concerns that any drying up of credit could spark a series of defaults on trade loans, or force other cash-strapped firms to cancel term shipments in the second half of this year.
"In the next two months, some smaller companies may default on term copper shipments if they cannot receive letters of credit or if they can't find a bank to do inventory financing," said a trader at a large international trading house.
As they review their commodity lending business, some foreign banks are considering measures such as getting finance guarantees from Chinese banks for letters of credit issued to local firms and taking on insurance with more comprehensive coverage, bank sources said.
"If we are signing contracts with their Singapore or Hong Kong-registered company, we may also start demanding guarantees from the Chinese parent," said an executive at a Western bank affected by the port scandal.
In the case of Decheng, there are worries among exposed banks that they would have difficulties recovering the losses because most of the financing agreements were signed with its Singapore-registered unit, which has limited assets to pay back creditors, said the executive.
Neither Decheng Mining, nor its parent Dezheng Resources, could be reached for comment.
Weeding out smaller firms
For smaller end-users and trading firms, both local and Western banks are also thinking of imposing loan restrictions that will require shippers to prove that they already have domestic buyers lined up for the metal, sources said - a move that could weed them out of the commodity financing business as they struggle to meet these tougher requirements.
These measures are set to make commodity financing in China - already under scrutiny by authorities - even harder and costlier, in turn helping large players, such as state-owned Chinese firms and large end-users, get even bigger.
Chinese state-owned firms, such as Minmetals, Jiangxi Copper International and Founder Commodities, are favored by local and foreign lenders alike as trading partners because of their financial muscle. There is also a perception that Beijing would bail out these companies if things go awry.
Authorities have not yet disclosed the amount of metal involved in the Decheng financing probe, but sources familiar with the matter said it was about 20,000 tons of copper, nearly 100,000 tonnes of aluminium ingots and about 200,000 tons of alumina, the raw material for aluminium production. That quantity of metal would be worth about $390 million at current prices.
According to Chinese business daily Caixin, Decheng's parent company, Dezheng Resources, and its subsidiaries had borrowed a total of 14.8 billion yuan ($2.38 billion) from Chinese banks for trade and other loans, part of it for metal imports.
Chen Jihong, a veteran trader and chairman of Dezheng Resources, has been detained by authorities since April and is being investigated as part of a corruption probe unrelated to Qingdao port, trading sources and bankers who have dealt with Decheng said.
With the incident putting China's sprawling warehouse sector under scrutiny, foreign banks are also likely to demand more stringent requirements of warehousing companies from whom they accept inventory receipts.
Import squeeze default risks
Pledging commodities to a bank using a warehouse receipt as proof of ownership, while agreeing to buy the cargo back at a set point in future, is a popular way to raise finance in global commodity markets.
It took off in China as traders sought to profit from the difference in global interest rates in the wake of the 2008 credit crisis: borrowing in dollars to invest in China's sizzling shadow banking markets - often through non-traditional wealth management products linked to property - where the gap between returns and funding costs could be as much as 10 percentage points.
While the Qingdao scandal has rattled global metals markets, investigations so far suggest this is an isolated case, with several bank sources saying that stock checks at other Chinese ports have not found any wrongdoing.
Still, the episode has already made banks more reluctant to grant letters of credit, even when legitimate, raising the specter of loan defaults and cancellation of copper imports in the later part of this year.
Worries of a worsening credit crunch have led some companies to sell their refined copper stocks in bonded warehouses in Shanghai, trade sources said, putting pressure on futures and on premiums which fell by nearly half after news of the scam broke.
Since then, banks have taken longer to approve finance for copper imports, boosting demand for Shanghai copper stocks and buoying futures prices. Shanghai copper hit a four-month high of 49,690 yuan ($8,000) on Tuesday.
To be sure, no foreign banks - even those that have hit by the Qingdao saga - are thinking of exiting the lucrative financing business permanently.
"Foreign banks are largely shut out of the domestic loans market, with restrictions on funding and products we can offer. But offshore trade financing, however, is one that plays to our strength," said an executive at another Western bank.