China's Gold Bullion Imports Slump as $15bn of "Fake Deals" Alleged
Friday, 6/27/2014 08:38
Copper "trade financing" scam seen hitting gold, deterring investors and imports...
GOLD BULLION imports to China halved in May from the same month last year, and could drop further say analysts as a "metal trade financing" scandal spreads from copper to include the precious metal.
Gold imports through Hong Kong – the primary route for bullion shipped into the world's No.1 consumer nation – totaled 52 tonnes last month net of exports, new data showed Thursday.
The lowest since January 2013, those gold bullion imports were down by more than 20% month-on-month for the third time running.
China's auditor general has meantime uncovered CNY 4.4 billion ($15.2bn) of what he calls "fictional" trades used to borrow money against gold bullion since 2012 – echoing trouble in copper, where the same underlying metal has been used multiple times as collateral for loans.
With an on-going investigation at Qingdao – the world's 7th busiest port – now "trying to establish who has proper title to the pledged metal," says a note from French investment and bullion bank Natixis, "Chinese demand for copper imports dropped significantly.
"This pattern could be repeated in gold, where investors may be reluctant to engage in new financing deals until the situation is clear."
"Any scaling back by banks of gold-backed financing deals," agrees senior analyst Liu Xu at Capital Futures Co. in Beijing, quoted by Bloomberg, "might lead to a short-term reduction in Chinese imports and also spur some sales by companies looking to repay lenders."
The auditor general's report says 25 gold processing companies – early-stage refiners in the scrap recycling business – falsified raised loans against bullion collateral, and made a profit by investing the money overseas at higher rates of interest in what he calls "idle arbitrage".
Research for market-development organization the World Gold Council said this spring that
Chinese warehouses may hold up to 1,000 tonnes of gold bullion as collateral for loans, but said the amount linked to speculative rather than corporate investment was small.
Such estimates stand against 2,000 tonnes of metal delivered in 2013 through the Shanghai Gold Exchange, the state-approved entry route for bullion bars.
So far in 2014, gold bullion import growth into China "has almost flat-lined," says Standard Bank's commodities unit. "Unless the price drops, demand from Asia, and China specifically, is unlikely to increase."
"When these [trade financing] gold deals begin to unwind," Reuters quotes a Shanghai trader today, "there could be an easing of imports though not a sharp decline."
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