China Open External Borrowings, Copper Trade Financing Falls

Trading companies operating in Shanghai’s free trade zone are likely to cut back on using copper imports as a financing tool as they are now allowed to borrow from overseas banks more freely, trading sources said.

Traders said the reduction would further hit China’s imports of copper, which dropped off after Chinese banks tightened credit in the second half of last year amid probes of an alleged metal financing scam.

More than 50 percent of China’s refined copper imports in 2012-2013 were linked to financing deals, according to traders.

“We used copper trade for transferring funds in and out of Shanghai. Now we don’t need copper any more because we can transfer money directly to and from our subsidiary,” said an executive at an Asian trading house with a subsidiary operating in the trade zone.

The executive said he expected bonded copper stocks in the zone to fall because of fewer financing deals. He declined to be named because he was not authorized to talk to media.

Many metal-trading companies moved into the zone looking for a freer trading environment after Beijing started it up in 2013 to try and gradually open the Chinese market.

Like importers outside the zone, these traders imported copper, nickel and zinc, storing the metals in bonded warehouses as collateral for cheaper short-term loans from foreign banks.

U.S. dollar loans from Hong Kong banks are charged annual interest rates of about 1.5-2 percent, compared to more than 5 percent for yuan loans in the domestic market, said the Asian trading house executive.