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China Scrambling After "Discovering" Thousands Of Tons Of Rehypothecated Copper, Aluminum Missing
"Banks are worried about their exposure," warns one warehousing source, "there is a scramble for people to head down there at the minute and make sure that their metal that they think is covered by a warehouse receipt actually exists."
The rehypothecated catastrophe that we discussed in great detail here (copper financing), here (all commodities), and here (global contagion) appears to be gathering speed as the China's northeastern port of Qingdao has halted shipments of aluminum and copper due to an investigation by authorities after they found "there is a discrepancy in metal that should be there and metal that is actually there."
Copper prices are tumbling already (despite Gartman's most recent prognostication on Dr. Copper's China recovery meme) as the world's 7th largest port disallows any shipments until the probe is complete.
"It's such a massive port I would think virtually everybody has exposure," warned one analyst, adding that this will be bearish for metals as "a lot of Western banks will try to offload material and try not to deal with Chinese merchants."
China's northeastern port of Qingdao has halted shipments of aluminium and copper due to an investigation by authorities, causing concern among bankers and trade houses financing the metals, trading and warehousing sources said on Monday. Port authorities could not immediately be reached for comment. China has a public holiday on Monday.
"We were told we can't ship any material out while they do this investigation," a source at a trading house said. The port of Qingdao is China's third-largest foreign trade port and the world's seventh-largest port, trading with 700 ports in more than 180 countries, according to its website (www.qdport.com/).
"Banks are worried about their exposure," one warehousing source in Singapore said.
"There is a scramble for people to head down there at the minute and make sure that their metal that they think is covered by a warehouse receipt actually exists," he said.
Metal imports have been partly driven in China as a means to raise finance, where traders can pledge metal as collateral to obtain better terms. In some cases the same shipment can be pledged to more than one bank, fuelling hot money inflows and spurring a clampdown by Chinese authorities.
"It appears there is a discrepancy in metal that should be there and metal that is actually there," said another source at a warehouse company with operations at the port.
"We hear the discrepancy is 80,000 tonnes of aluminium and 20,000 tonnes of copper, but we hear that the volumes will actually be higher. It's either missing or it was never there - there have been triple issuing of documentation," he said.
Beijing last year set new rules to curb currency speculation amid signs that hot money inflows helped push the yuan to a series of record highs. The rules required banks to tighten the management of their foreign exchange lending and types of clients that are able to access those loans.
"It's such a massive port I would think virtually everybody has exposure," the trading source said.
"Once the investigation is over, it could be bearish for metals. I think that a lot of Western banks will try to offload material and try not to deal with Chinese merchants," the trading source added.
Critically - this is a major problem for any shadow-banking credit creation process as if the rehypothecated commodity-backed CCFDs are ultimately unwound, 1) someone will not get their collateral (payment problems - bailouts?), 2) less real collateral means less real credit expansion (which banks can;t fill because the firms that use this method of financing are anything but creditworthy), and 3) liquidation of any assets will proceed rapidly...
Goldman concludes that "an unwind of Chinese commodity financing deals would likely result in an increase in availability of physical inventory (physical selling), and an increase in futures buying (buying back the hedge) – thereby resulting in a lower physical price than futures price, as well as resulting in a lower overall price curve (or full carry)." In other words, it would send the price of the underlying commodity lower.
Finally, as we showed before when it comes to commodity financing deals, in terms of total notional value, both copper and aluminum pale by comparison to the one metal most used (by value) in China as a funding substitute: gold
As we commented previously:
When we previously contemplated what the end of funding deals (which the PBOC and the China Politburo seems rather set on) may mean for the price of other commodities, we agreed with Goldman that it would be certainly negative. And yet in the case of gold, it just may be that even if China were to dump its physical to some willing 3rd party buyer, its inevitable cover of futures "hedges", i.e. buying gold in the paper market, may not only offset the physical selling, but send the price of gold back to levels seen at the end of 2012 when gold CCFDs really took off in earnest.
In other words, from a purely mechanistical standpoint, the unwind of China's shadow banking system, while negative for all non-precious metals-based commodities, may be just the gift that all those patient gold (and silver) investors have been waiting for. This of course, excludes the impact of what the bursting of the Chinese credit bubble would do to faith in the globalized, debt-driven status quo. Add that into the picture, and into the future demand for gold, and suddenly things get really exciting.
So if tens of thousands of tons of copper and aluminum are suddenly "missing", one can assuredly say: "at least the gold is still there." Right?
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Try this, Dipshit:
Stand on Tiananmen Square with a sign that simply reads "June 4th, 1989".
If you do that then we will never have to hear from you again.
Makes me laugh. Cheap shippment of propaganda again.
You've become loathsome.
I give great credit to Zero Hedge for not pandering to miscreants like yourself, teslaberry. Your cries for censorship are all anyone needs to know about you.
You are the equivalent of the "Better Homes And Gardens" magazine left on the public toilette seat.
SPX 1929... so close!
I am sure TPTB will take note, that this whole problem began when someone decided to take an inverntory.
The federal reserve took it. Being mixed with gold paint to be given back to Germany
This article was a bit confusing to me also - lower supply SHOULD = higher prices, not lower.
However, I think the main issue is metals have been used as re-hypothecated assets to get loans. I need $10mil, here is a receipt for my ownership of $4mil worth of copper. Bank loans me the rest on other "assets".
If the copper is not there, the bank does not want copper. The bank has no use for copper other than as an asset that can be sold in case of default. The bank either wants the $4mil backed by the now gone copper OR another asset of equal value and liquidity to back that part of the loan.
There is no need for anyone to buy the copper to cover its vanishing. Sure, eventually that copper would be used in production - however, once used it is no longer collateral for a loan.
I cannot pledge $4m in copper to get a loan and subsequently use all the copper to produce products. You cannot change/alter the collateral of the loan without approval from those lending you the money no different than you cannot sell a building you have pledeged as collateral for a loan without approval first.
Otherwise, the loan now has essentially no collateral other than produced product which may or may not be saleable and is often shipped out once created. Its now scattered all over the place. Most often products are shipped with bills due. Perhaps some buyers also pay with "receipts" of copper - which is not there any longer. Others demand 30 to 45 days payment due. So the bank has worthless receipts backed by more worthless receipts and bills due from 100s of third parties. Banks don't work this way.
I think that's it. And the use for the copper as the asset at the bottom of an inverted pyramid of leverage, created an artificial demand for physical copper.
I don't know if this has been mentioned
Steve Forbes: Link dollar to gold or face Great Depression
http://washingtonexaminer.com/steve-forbes-link-dollar-to-gold-or-face-great-depression-ii/article/2549231#
that fucking video was 3 years old. he was wrong, dollar debasement continued for 3 years and gold went down. so you got snookered.
why even link a stupid ass 3 year old failed prediction as 'news'. the washington examiner is running out of money to do any original news journalism.
fuck sake.
cuz i read it today and dd not see that it was originaly posted previously
some of us have not been following this for years like some of you
you don't have to be impolite, I come for info, not a fight
Just so you know we do call this "Fight Club". You may get some jabs from time to time.
Hasn't ZH done the same twice recently
how about calling them out on that the same way
Dump copper, what copper only 170,000 tonnes in LME, scrapping the bottom.
http://www.kitcometals.com/charts/copper_historical_large.html#lmestocks...
Scary when in the world of GS a shortage causes the price to be lower.
Makes perfect sense in the new normal. Create a paper long squeeze, so frustrated longs (who are actually "right", so rightfully frustrated, and thus wrong) throw in the towel in disgust and cough up some metal, and Ta Da, more supply coming in, stabilizing the market somewhat.
Move on folks, nothing to see here - it's just the Fort Knox Syndrome.....Get used to it.....
Maybe that explains the convoy of 18 Army trucks cutting through heavy traffic in Qingdao this morning. The lead vehicle had a siren blasting.
The price is going down, because the paper that is supposed to represent the metal is essentially worthless without the metal backing it.
So the confidence in the paper is destroyed and thus everyone is selling it, causing the price of the metal to fall because we don't have a real spot price for these metals.
Everyone is redeeming their paper tickets in a panic sell of is all.
If people could buy the metal directly without the paper scam third-party system , the prices would be more or less fair-market value.... but with this system its almost impossible to determine the real price for any asset.... even stocks which are o/c subject to the same third-party scam flaw via brokerages (Do you think those are stocks your buying?) syndrome of sorts.
All markets are like this, fake. . . . ghost markets with no underlying assets really 100% backing them.
Everything is fractionalized, hypothetical, derivitized and ponzified.
You want to buy some copper? how many shares???? right away sir . . . computer fills order based on fake inventory numbers and the guy at the top keeps his fingers crossed that everyone buying is just speculating on the price and will never redeem.
Its madness.
The markets are supposed to help move capital to where it would most efficiently be used, its not supposed to be an investment casino tool where people buy completely based on speculation with no intention of actually using the material.
Imagine the shit-storm when the Chinese find out that those aren't gold bricks but rather that they are tungsten bars clad in gold! ;p
See, that's why we should all follow MillionDollarFuckface_ & buy secure Treasuries backed by the full faith & credit of the You-Knighted States of Uhmurrika. Unlike silly copper or gold which are backed by nothing.
Down is up, left is fork, low supply = super-low prices.
I can't believe you didn't learn this along with everyone else by your 911th unbirthday.
Big mistake there.Shouldn't have duplicated the model that Goldman Sachs was developing in order to manipulate various commodities markets.The rehypothecation in the Chinese case though has been linked to different purposes, one of which is cash loans into the real estate market with warehouse commodities used as collateral. I believe the Fed stopped Goldman when they saw commodity market manipulation but the bigger picture was the danger the Fed saw that was already being implemented in China.Nothing left in the warehouses?Sounds very familiar with the the Gold story coming to mind.London vaults being already close to empty of any Gold and a paper market dependant on naked short selling to stay afloat.The Chinese and Russians have and are taking the easy "cream skin" off the Gold markets.Easier than mining right now and less risk at these prices.The GOFO charts by Alasdair Macleod show the cycles in the negtive GOFO rates in a sideways channel.It's a no brainer that western bankers are too stupid to see or understand.You'll see Gold skyrocket when this manipulated steep rise in the S& P500 comes to a ponzi endgame.The default of Gold on Comex or elsewhere is one possibility of a trigger.Like James Rickards says " the gold stockpiles are still there,the smart players have and are taking the easy gold off the markets that is used to manipulate the markets."
I've always wondered why a criminal woulds risk getting caught stealing something that's only worth a few dollars a pound. Its not just tweakers stealing copper out of abandoned houses either. The risk/reward isn't that great and it takes actual work to get it out. You know the streeet price is way higher when you get your AC condenser unit stolen out of your occupied house and the city gets the wiring for its street lights stolen. So this tells me the black market price is higher than the official price. Who would be willing to pay more for something than the actual price? Somebody who can sell it many times over as collateral. I'm still not sure if the whoever is running the warehouse/ wherehouse has figured out the banks game or if the banks are in on it. I'm sure the banks will find that it is all there but there is just some mixup as to which wherehouse its in. Deep storage, etc.
i wonder if all the excess building throughout the years used copper-clad aluminum wire....
they'll find out how good their wiring jobs are when those ghost cities reach full occupancy.
I DONT get the jump from ......
thousands of tonnes of copper missing = lower copper prices
If you thought you had copper and now you dont and you still need copper, you know to MAKE ANYTHING ELECTRICAL then you need to buy copper.
Copper wasn't artifically driven up but DOWN, had all those copper buyers actually bought copper in the quantities they claim, copper would have been much higher.
Or there is a 3rd possibility, world war is coming and munitions materials are being discretely accumulated, somewhere.
The size of 20,000 tonnes of copper aint much
lower copper prices = thousands of tonnes missing
this is a hard asset market, if you can buy on spec you will, if you cant you will buy on weakness and pay cash. hedge funds store oil, the chinese hide copper, the oil producing states downplay their reserves, if you had something to sell today for a price that might be half of what it is tomorrow, you would keep that off the market. prices are distorted this is global price control policy on everything
The idea is that part of the demand for copper was for collateral to be leveraged up, several times over, with cheap money--so this created an artificial demand. How big an effect the elimination of this demand is, remains to be seen.
Gold is probably subscribed 70 to 1 oz. Buy billions in paper, take delivery and buy billions at the same time. The COMEX blows up because it can't deliver on contracts.
I have ananonidea: you having to holding it is actually owning it? How barbaric! Paperings & receipts all around!
resembles strongly the practice of some, so called, central banks.
I dont understand. It was there a minute ago.
If you have the paper work you have nothing to worry about.
It is the same reason for delivery bottlenecks as GS warehouses.
Corzined!
Don't worry, I've got it all stored in the basement of my New Jersey condo.
Jon Corzine.
Goldman just assumes that no one will be forced to buy the copper to put in these warehouses. 1 day they say all the copper in those warehouses will be sold when these deals unwind. The next say they say the copper is not really there and so it will all be sold. Nonsense. Goldman is just short copper and they are screwed. That is why they never deliver out of their warehouse. That is why they are always screaming short copper. The bet wrong on every metal. They are stupid coolaid drinkers.
When I was walking down the stair
I saw 20,000 tons of copper that wasn't there.
It wasn't there again today,
Oh how I wish it'd go away.
Gold plated copper
couldn't source enough titanium....
"Goldman concludes that "an unwind of Chinese commodity financing deals would likely result in an increase in availability of physical inventory (physical selling), and an increase in futures buying (buying back the hedge) – thereby resulting in a lower physical price than futures price, as well as resulting in a lower overall price curve (or full carry)." In other words, it would send the price of the underlying commodity lower."
makes perfect sense to me. one less group of people trying to 'buy' the commodity.
the only ones left are those who are actually going to use the commodity.
just goes to show the impact of this form of 'banking' on commodities.
and speaks of the theft from the pockets of everyday people.
:)
Maybe. But you assume that if you can't gamble with the papers anymore, the gamblers will just go away ("one less group of people trying to buy").
IMHO, the gamblers don't like to go home and face the ugly truth.
They will continue gambling with what is left (the physical). It will be much slower and much more difficult, but still.
Imagine a casino with a lot less chips (say 90% of the chips are held back suddenly).
Do you think 9 out of 10 gamblers go home?
No. They will all scramble for the still available chips...
"Maybe. But you assume that if you can't gamble with the papers anymore, the gamblers will just go away ("one less group of people trying to buy")."
if the gamblers take delivery, and are not allowed to use the commodity as a 'banking' tool, more power to them. let them accumulate the physical commodity, waiting for price movement to cover their cost of actually taking delivery. the cost to acquiring and storing electrons is exponentially less and much easier to do than to acquiring and storing physical commodities. if required to take delivery, they become competition for warehouses and storage tanks, etc.
as for your casino scenario, the number of chips (supply) is artificially reduced. in the speculator invested commodity market, its the number of purchasers (demand) that would be reduced if taking delivery was required. virtually non of the virtual purchasers are in a position to take delivery.
:)
If it was stolen, there would be plenty of storage space for it.
In 2011, Goldman Sachs invested billions of dollars, building Two hundred thousand (200,000) “ Aircraft hangar size” warehouses for the Chinese.
Probably sitting on barges out in the So Chin Sea waiting for favorable prices.........
Hey dude where is my copper and aluminum?
Corruption is thriving in China, this tends to weaken transparency and bring into question how much faith you should have in its government. The cost of corruption is incalculable. "Crony communism" and the corruption that comes with it undermines social stability and sparks tens of thousands of protests each year.
This is just another sign of the coming hard landing. As China continues to produce funny, fuzzy, and flimsy numbers the world will begin to question and eventually lose faith in its flawed system. We may now be seeing the first cracks are beginning to show. More on this subject in the article below.
http://brucewilds.blogspot.com/2013/04/china-and-corruption.html
You sure are a spammer.
I've been given Truth!: Cannot disclose but heed this putrid minions!
Hence!:
"when the hedge of zero bleeds of prosperity in Tomb --- sell everything and any and all in the bloody womb!" ----
Vision of The Gods: 2014
The solution, of course, to the inelastic supply of commodities is cartel control with a central warehouse that is authorised to print metal and distribute it to the regional member warehouses.
Copper is an industrial catalyst.
Whodathunk that it could be a financial catalyst too!! LOL
from the WSJ Online : << Some investors fear the investigation will lead to a wider clampdown on lending practices involving commodities, which analysts estimate currently ties up as much as one million tons of copper.
That also could force companies to sell commodities they had been using as collateral, flooding the market. China accounts for roughly 40% of world copper demand. >>
One Million Tons - now THAT is a pretty big pile to dump!! Assuming they can even find all of it of course - it might be 100K tons that has been rehypothecated 10X... Thank you Tyler for helping me learn how to spell that word.
Repeating what others have said, this is actually bullish for prices. Maybe bearish bias in short term for commodity market pricing confidence but that shouldnt last. Rehypothecation issues should drive commodity prices upwards as the physical base is grossly overstated.
I always love a good con job......hehe
Just wait until the entire western world wakes up to discover that everyone's retirement has been rehypothecated by the central banks.
Long guillotines.
I read somewhere that ultra rich financiers love the totalitarian model, more profits of course. Making humans shun brains and just become a function is an asset and thought is a hazard. So both sides of my ass need kissing west and east, I usually don't like eastern Asian girls they are built like 10 year old boys or ironing boards. West get laid off east get worked to death, lucky us. So from the farthest bottom of my heart, and someone who got the hammer more times than I care to admit, suck moon sized ball and and jetliner sized dicks, the rest of earth will crack a cold beer when you are dead and dead again just in case.
http://www.youtube.com/watch?v=1JhTM0Lar3Q&sns=em
So if there is 1 tonne of Copper in storage. It is rehypothecated 99 times. Suddenly 5 people want to check their Copper so only 4 tonnes are "missing" the other 95 people now want to check their copper. Suddenly 99 tonnes are missing.
Why can the con not continue and just put 99 ticks on the 1 tonne of copper, count it 99 times, so no copper is missing.
What would be the killer punch is that if in a Goldmann Sachs storage facility holds 1000 tonnes but the audit shows 100,000 tonnes in the Audit. As Scotty says in Star Trek " Ye Kanny beat the laws of physics, Captain". Or does Goldmann Sachs have 99,000 tonnes in transit.
Yeah but that's in China, nobody in America would do that because that's like Illegal isn't it ? I can't believe somebody on Wall St/Comex would deliberately falsify records to make a buck.
Don't forget ABN AMRO is an LMBA clearing bank...and it they couldn't get the gold...
All of this as GOLD SUKS told the world to sell gold. AND THEN, GOLD SUKS magically became one of the biggest owner of GLD! Also during this scam, the Crimex, London and GLD were raided for their gold.
Nothing to see here...