Top banks pull back from China metal financing after crises

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JPMorgan Chase & Co. and ICBC Standard Bank Plc are cutting back on financing to China’s troubled metals trade, adding pressure to a sector already hit hard by a struggling economy.

At least three Chinese metal trading companies have had credit lines frozen or reduced by either of the banks in recent weeks, according to people familiar with the matter. The lenders have pulled back after a liquidity crisis emerged at top copper trader Maike Metals International Ltd., said the people, who asked not to be identified discussing private information.

Both JPMorgan and ICBC Standard Bank have financing relationships with Maike. It’s not clear whether the banks’ pullback from the Chinese metals market is a temporary freeze while they assess their situation, or a more permanent retreat.

Maike’s admission last month that it asked for government help with liquidity issues is further shaking confidence in the industry, coming after the nickel short squeeze that almost bankrupted Tsingshan Holding Group Co. in March, and two recent cases of missing metal used as collateral for financing deals.

JPMorgan had the largest exposure to Tsingshan of its roughly 10 banks and brokers, and was reviewing its commodities business in the wake of the nickel crisis, Bloomberg reported at the time. ICBC Standard Bank was also among Tsingshan’s banks and brokers.

Warehousing deals

Bank financing is the lifeblood of a trade that sees millions of tons of metal flowing into the world’s biggest market every year for use in everything from electric wiring to air-conditioning units. China accounts for about half of global copper consumption — up from a tenth just a decade and a half ago — and its demand shifts can swing global prices.

The recent withdrawals relate principally to so-called repurchase agreements, known as repo deals, under which banks finance metal inventory by purchasing it from traders with an agreement to sell it back at a later date, and which are one of the main sources of credit in Chinese metals markets.

Spokespeople for JPMorgan and ICBC Standard Bank declined to comment.

Maike said this month that its domestic banks had agreed to give it some support, including by extending existing loans. However, many of its lenders and trading counterparties remain cautious. ICBC Standard Bank, for example, moved some copper out of China’s bonded zone, Bloomberg reported last week.

(By Archie Hunter, Alfred Cang and Jack Farchy, with assistance from Martin Ritchie and Rob Verdonck)

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