Wednesday, June 18, 2014

China missing commodity scandal widens June 18 , 2014 -- Copper, Iron Ore, Rebar, Rubber, and now Cotton are all at multi-year lows as the Qingdao CCFD ponzi probe continues to broaden to all the commodities we warned about previously...... In a major development , Chinese commodities trading firm CITIC admission that over half of its 220,000 tonnes of alumina are missing ........... The Bank Of England Lost 755 Tonnes Of Gold In 2013 ( note UK net gold trade over same period was almost 1600 tonnes ) ......

CITIC Missing Half Its Alumina, Seeks Legal Action As Qingdao Rehypothecation Scandal Goes Nuclear

Tyler Durden's picture

Copper, Iron Ore, Rebar, Rubber, and now Cotton are all at multi-year lows as the Qingdao CCFD ponzi probe continues to broaden to all the commodities we warned about previously. As CottonCN reports, the probe's increased uncertainty and scrutiny of shipments may hurt imports of of cotton in the form of consignment sales, as international traders delay shipments or deliveries to wait for clear policies as authorities continues their investigation. Even soybeans and palm oil have been on a notably downswing since the probe into the collateral evaporation started. Then comes the news that Chinese commodities trading firm CITIC admission that over half  of its 220,000 tonnes of alumina are missing. This is far from over...

Cotton has been sold down to 2010 lows as the probe widens...

Along with Iron Ore...



Chinese commodities trader CITIC Resources Holding Ltd said on Wednesday that more than 100,000 tonnes of alumina stored at Qingdao port was missing,deepening fears that firms exposed to a metals financing scam at the port could face big losses.


"The company has been notified that in the enforcement of the sequestration orders obtained by the group, the Qingdao court has been unable to sequester about 123,446 MT (metric tonnes) of alumina which the group has stored at Qingdao port," the firm said in a statement to the Hong Kong stock exchange.

CITIC Resources said it had title to 223,270 tonnes of alumina and 7,486 tonnes of copper stored at the port pending payment by and delivery to buyers.

CITIC said it did not have information on the current status of an investigation by Qingdao authorities and was not yet able to accurately assess the impact of the alleged fraud on the company.
...the copper "monetary metal" funding pathway is best known, and in fact we covered the inevitable end of the Chinese Copper Financing Deals in gruesome detail last May in "The Bronze Swan Arrives: Is The End Of Copper Financing China's "Lehman Event." What happened next was that despite repeated warnings by the PBOC and SAFE that it would end the hot money inflows masked by funding deals, China not only encouraged more CCFDs but aggressively expanded into other commodities, such as iron ore, and as we now learn, weird and wacky commodities such the abovementioned soybeans, palm oil, rubber, zinc, aluminum, gold and nickel.To be sure this was largely precipitated by the near collapse in the overnight lending market in June of 2013 when China's first and so far only real tapering attempt nearly destroyed the domestic financial system.

So what has changed since May, in addition to the realization that virtually every hard asset is now being used by China to mask hot money inflows into the Chinese economy taking advantage of rate differentials between the Renminbi and the Dollar? Well, this time around China may finally be serious about normalizing its epic credit bubble, which as we pointed out before, added a ridiculous $1 trillion in bank assets in just the fourth quarter of 2013 alone. Specifically, as Goldman notes in a just released analysts on the future of CCDS, "the recent managed CNY depreciation is a signal that the government wants to increase FX volatility and reduce the hot money inflow pressure gradually."
In other words, the day when the Commodity Funding Deals finally end is fast approaching.
And in this context, 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) (Exhibit 11).

Simply put - all that exuberance based on the high prices of industrial (and non-industrial) commodities was misplaced... shadowy credit expansion and what we now know as ponzi financing merely provided a mirage of demand that hid the true nature of the economy... unfortunately that mirage sent signals to the world that everything was hunky dory and mal-investment and speculation followed. We are sure, however, that thiswill all end calmly as investors line up in an orderly fashion and leave the burning theater.

And just in case you thought the rule of law would help...
"[Citic Resources] will conduct its own investigation to ascertain why the court has been unable to enforce its sequestration order in respect of all of the group’s alumina..." said in the statement.

The company will also consider “legal proceedings if necessary”.
This is the first time any firm has actually admitted its missing commodities... let the orderlyselling/scramble for collateral begin...

The Bank Of England Lost 755 Tonnes Of Gold In 2013

The Bank Of England (BoE) just came out with their annual report 2014. In the report it’s stated the BoE is the custodian of 5485 metric tonnes of gold (£140 billion pounds measured February 28, 2014). From the BoE annual report 2014:

The Bank provides custodial services for a range of customers. As at 28 February 2014, total assets held by the Bank as custodian were £594bn, of which £140bn were holdings of gold.

In the BoE’s annual report 2013 it was stated they held 6240 tonnes of gold (£210 billion pounds measured February 28, 2013). From the BoE annual report 2013:

As part of this strategy the Bank also provides custodial services for a range of customers. As of 28 February 2013, total assets held by the Bank as custodian were £699 billion, of which £210 billion were holdings of gold.

(To calculate the tonnage I used a gold price of £1046.719 for February 2013 and £793.931 for February 2014)

According to the BoE they had 755 tonnes less gold in their vaults in February 2014 relative to February 2103 (in contrast to reports the BoE lost 1300 tonnes in 2013). The BoE is a custodian for central banks and the LBMA, the removed gold from the vaults was most likely from LBMA customers. GLD’s gold inventory is vaulted in London, but I’m not positive how much, if any, of their gold is stored at the BoE. GLD’s stock lost 451 tonnes over this period. If everything GLD lost came from their own HSBC vault, and nothing from their sub-custodian the BoE, the gold removed from both GLD and the BoE in total is 1206 tonnes.

However, when we look at UK’s net gold trade over this period (March 2013 – February 2014), we can see 1593 tonnes were exported.

UK Gold Trade 2009 - march 2014

This leaves a gap of 392 tonnes (1593 minus 1201), which had to be supplied by additional LBMA or private vaults in London.

In Gold We Trust