Qingdao Port sued by metal firm

Major Chinese port operator Qingdao Port International said that it has received two legal notices from Pacorini Metals (Shanghai) Logistics Ltd which is claiming compensation due to the non-delivery of Pacorini's metal cargos stored at the port's bonded zone.

Pacorini Logistics, owned by Swiss-headquartered commodities trader Glencore International SA, is the latest trading house to launch legal action, claiming a total of $58.4 million from the Dagang Branch of Qingdao Port and third-party shipment agency Qingdao Hongtu Logistics, according to an announcement posted by the Hong Kong-listed port on late Friday.

According to the announcement, in the first suit, Pacorini said it suffered losses as Qingdao Port and Hongtu refused to deliver 8,085.19 tons of aluminum ingots, worth about 120.1 million yuan ($19.54 million). In the second suit, Qingdao Port and Hongtu were accused of not delivering 112,731 tons of alumina, which caused damages of $38.89 million.

Qingdao Port said in the announcement that Hongtu is also under a fraud investigation and the metals of Pacorini, which were held by Hongtu, were detained by authorities due to suspected involvement in criminal activities.

"Given there is no contractual relationship between the company and Pacorini Logistics ... the company's initial assessment is that the legal proceedings are without merit," the port said in the announcement. It noted that it would "vigorously contest" the allegations.

The first hearings for the two cases brought by Pacorini will be held by the Qingdao Maritime Court on October 28 and October 29 respectively.

Qingdao Port, the operator of a bonded warehouse at the world's seventh-busiest port by cargo throughput in East China's Shandong Province, is embroiled in an ongoing fraud investigation.

Decheng Mining, a local private metal trader, is under investigation after it was reported in early June to have duplicated warehouse receipts in order to repeatedly obtain multiple bank loans.

Analysts said Sunday that the tangled lawsuits stemming from the alleged fraud may hinder the swift recovery of metal trading and are unlikely to be settled very quickly.

"The ongoing probe at -Qingdao Port could drive many companies to store their metal cargos at the more strictly regulated London Metal Exchange (LME). This would lead to high inventory which is likely to further weigh down metal futures prices that have already suffered from an economic downturn," said Zhang Sida, a nonferrous metal analyst with Shanghai Continent Futures.

Copper prices, for instance, stood at $6,872.75 per ton on Friday, narrowing down from $6,999.75 on August 8 and $7,076.5 on August 1, according to the LME.

The demand for refined copper, the most widely applied metal in financing, has fallen following the Qingdao probe reported at the start of June.

According to data from the General Administration of Customs, China's imports of refined copper dropped 8 percent year-on-year in June, a 13-month low, and copper import figures in July fell 2.9 percent from June.

With multiple claimants and cross-country jurisdictions, the lawsuits related to the Qingdao Port may not be wrapped up soon, Wang Guohua, a lawyer with Beijing-based Zhongwen Law Firm, told the Global Times Sunday.

"Generally speaking, it takes two or three years or even longer to make a primary judgment on lawsuits involving foreign companies," he said.

The alleged financing scam over Decheng has reportedly prompted foreign banks such as Standard Chartered and various trading houses, including CITIC Resources and Mercuria Energy Trading SA, to fire off a series of legal actions over their exposure that has amounted to about $900 million.

Using commodities as collateral for financing is a common practice in China, but the usage of multiple receipts for a single piece of cargo to obtain multiple loans is illegal.

"The lack of an information-sharing mechanism among banks makes it impractical to verify whether other banks have already granted loans based on the same metal cargo, which resulted in such fraud," Zhang said.

According to the Shanghai High People's Court in early April, courts in Shanghai have accepted about 3,700 financial and commercial disputes in the steel trade in 2013, 5.5 times more than the figure in 2012.

An employee with a bank in Qingdao said in an early interview with the Global Times on the condition of anonymity that many banks have already become stricter regarding metal financing, requiring trading houses to set aside much more money as collateral if they want to get warehouse receipt-based loans from banks.