Copper Snaps Win-Streak As Imports Plunge 17% & Default Fears Reignite

Tyler Durden's picture

Quietly behind the scenes, amid all the chaos of the Qingdao probe's contagion, copper has rallied modestly in the last seven days. That streak ended last night as the warehousing concerns we noted spreading to the entire sector, combined with a collapse in Chinese copper imports (down 17% in May), and yet another default (China Ting holdings said said two borrowers defaulted on entrusted loans). So it seems that not only are the commodities missing, but so is the the slow motion train wreck gathers pace (no matter what PMIs or minis stimulus do to evade the tightening) as China's money-market rates (at 5 month highs) suggest liquidity demand is very high (and desperate).



We saw this kind of squeeze higher in early May, which collapsed back to 2014 lows quickly as reality restruck and perhaps the plunge in copper imports was that wake-up call...

As Bloomberg notes,

China’s imports of refined copper fell 17 percent to 282,969 tons in May, customs data showed yesterday, marking the first monthly drop since February. Inbound shipments could fall further as the Qingdao investigation may curb purchases from abroad by traders who use commodities as collateral to get loans, according to Ye Yonggang, an analyst with Jinrui Futures Co. in Shenzhen.


“China’s trade data showed a slowdown in the country’s demand for metals, clouding the demand outlook,” said Kazuhiko Saito, an analyst at Fujitomi Co., a commodities broker in Tokyo.


The country’s copper exports rose 31 percent to 28,149 tons, the highest since April 2013, customs data showed. Some copper may be moved from China to LME warehouses in South Korea, and possibly Singapore and Malaysia, according to Jeremy Goldwyn, head of business development in Asia at Sucden Financial Ltd.


China’s imports of zinc and lead also declined in May from a month earlier, customs data showed.

And then there's defaults...

China Ting Group Holdings, a garment maker, said two borrowers defaulted on entrusted loans it made through Ningbo Bank Corp. and Bank of Communications Ltd. The stock fell.


Zhongdou Group Holdings Ltd. and Hangzhou Zhongdou Shopping Centre Co. failed to make interest payments on schedule on loans worth 160 million yuan ($26 million), China Ting said in a Hong Kong exchange filing yesterday.


Entrusted loans, advances between companies arranged through banks, are part of China’s shadow banking system that regulators are seeking to rein in. Some of the entrusted funds, which totaled 8.2 trillion yuan as of the end of 2013, were being directed to industries that face lending curbs from the government, according to the People’s Bank of China.


“Ningbo Bank Corp. confirms that they have commenced legal proceedings in respect of their loan arrangements with Zhongdou Group,” and Bank of Communications is prepared to take action, China Ting said.

This is a problem because...

The number of entrusted loans made by publicly traded companies rose 43 percent from 2012 to 397 cases in 2013, the central bank said in its 2014 financial stability report.

It ain't over yet...

Despite the PBOC mini-stimulus, money market rates are on the rise again... as demand for liquidity is clearly on the rise...

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DoChenRollingBearing's picture

It is hard for me to make any kind of intelligent remarks re the "The Flying Copper", as I have not ever run into a fraud like this before.  I really look forward to seeing how this will all play out.

Especially re gold.

wrs1's picture

Gold is unrelated but 1320 is the line for gold.  That price has been an upper limit for two months now.  If gold can get back through that level then it can try for 1400 again.  The problem is that another failure may set it up for a test of 1200 again.

NoDebt's picture

"It ain't over yet..."

I keep hearing the Tylers saying that.  Somewhere in the back of my brain is another voice starting to whisper to me: "yes, it is".

Interbank lending rates within China coming off a low bottom isn't looking like panic to me.  I'm not seeing contagion rippling off-shore to US or European banks, or frozen credit markets setting in.  

I'll give it some more time.  It was a while between Bear Stearns and Lehman, so it's still possible this is one of those slow-motion train wrecks.  I have a feeling if this is the match that finally lights the fire it will be because of a confluence of these Chinese rehypothecation defaults AND US/Worldwide GDP not getting the expected (and typical) 2nd half bounce.  It's gonna have to be more than one thing.  This alone doesn't look like it's going to do it.

max2205's picture

They got too much.....they don't have enough. ....make up your mind

Cattender's picture

No Fear... i will continue to buy silver and Gold!

DoChenRollingBearing's picture

And so will (someone in) China!

Leveraged Algorithm's picture

I had someone say that all the Government will do is put a very high tax on gold & silver where nobody wants to trade it.  I guess it is the same as the 1930's....

LetThemEatRand's picture

Prostitution and drugs (except those pushed by Big Pharma) are illegal in most places.  Still seem to trade, and often at a premium over what they would cost if legal.

Leveraged Algorithm's picture

I can only hope.  The IRS has become the weapon of mass distruction.

BringOnTheAsteroid's picture

Why are people so obsessed with obeying the law. Once you've pulled your money from the system by storing it in the form of PM's, it's out of the system. End of story. If you want to trade those PM's for something else that is your business. I wonder what pivotal event or person will catalyze the awareness of human beings to their plight as subservient to the rich and powerful. Imagine if somehow, a majority of people were motivated to say:  "You know what, fuck it, I'm not going to work". The person who has the ability to motivate this type of action amongst the people will be the next prophet that holy books are written about in hundreds of years. 

Oracle 911's picture

@ algo


Was the IRS ever anything else (I mean weapon of mass destruction)?

CoonT's picture

So if China no longer needs copper, can we expect a significant decline in price for the next...decade or so? I'm thinkin' it's bye-bye stash time!

oddjob's picture

Everybody needs copper. Copper for delivery in 2019 is still $3+/lb

NoDebt's picture

And the cost to dig it outta the ground isn't going down anytime soon.  Cost/BTU of energy is a merciless bitch.

sessinpo's picture

oddjob  Everybody needs copper. Copper for delivery in 2019 is still $x/lb.


NoDebt    And the cost to dig it outta the ground isn't going down anytime soon.  Cost/BTU of energy is a merciless bitch.


Sounds like the argument made around a top. Its like saying buy real estate, There is only so much land. Then RE crashes. LOL

Seize Mars's picture

Liquidity panic, slo-mo.

Chinese overnight repo rates are like a rollercoaster with Aerosmith music blasting.

Edit: sorry I ran out of humor, mid-joke.

buzzsaw99's picture

"only" 280K tons in May? Oh noes!

youngman's picture

If the price is dropping that fast...then the security held in those warehouses is losing value just as you either need to supply more or pay down your loan I would assume..or run and hide in another country

Quinvarius's picture

They shoot people in China for ftaud. Keep on shouting to the world in this ever evolving copper short meme about missing copper means lower prices.  They buy or die, literally.  But the fact is this whole ccfd thing is horseshit.  Tjis is simply people who bought stuff that want it.  This is all related to the GS inability to deliver copper from their warehouses.  Copper will double.  Shorts bet wrong on china across the board.  Or perhaps the shorts plan to strip the copper from chinas ghost cities themselves.

Vampyroteuthis infernalis's picture

Not much good to a creditor if they put a bullet in the head of the dude who owes you big time! Nasty nasty.

AdvancingTime's picture

 Much of the recent growth in China after 2008 came from a massive 6.6 trillion dollar stimulus program that expanded credit and poured massive amounts of money into the system. This money encouraged expansion and construction with little regard as to real demand or need. Like a plane on autopilot China continued in the direction it had been on.

Now China finds itself in a credit trap. For years the people of China have had the habit of saving much of what they earn but the low interest rates paid at banks has not rewarded savers. With few investment options much of this money has drifted towards housing and driven housing prices sky high. The economic efficiency of credit is beginning to collapse in China and the unwinding of China’s giant credit spree could be very painful. More in the article below.


oklaboy's picture

the insanity will roll on, watch.....