China tightens Qingdao cargo transfer policy from 1 July

04 July 2014 10:21 Source:ICIS News

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SINGAPORE (ICIS)--China has tightened its policy on cargo transfers at Qingdao following a recent case of potential fraud involving commodity financing, according to an official notice from the Qingdao port.

Under the new policy that took effect this month aimed at preventing fraud, cargo transfers at the bonded area of Qingdao will be restricted to registered enterprises.

When involving non-registered enterprises, the transfer can only be done once, with the originator required to report the transaction and enter it in the checklist of the warehouse where the cargo will be lodged.

Qingdao is the third largest port in China and the seventh biggest in the world, according to the company’s website.

Players in the natural rubber market raised concerns that the new policy will reduce the trading volume of their commodity, as stricter regulations could lead to delays in doing cargo transfers.

Default issues hounded the natural rubber market in the past, but there had been no cases of fraudulent financing that cropped up, they said.

Some market players in the polyethylene (PE) market, meanwhile, cited that getting letters of credit (LC) from banks, particularly for bonded cargoes, has become more difficult following the implementation of the new policy at Qingdao.

Qingdao port is one of the major ports for China PE import, according to China Customs.

In the first four months of the year, PE import volume at Qingdao port accounts 15% of total import volume in China.

Banks have tightened the issuance of LCs, following reports that some metals traders have been allegedly repeating mortgage of cargoes to secure funding.

Chinese authorities are currently investigating the case involving stockpiles of metals in Qingdao that may have been used to secure multiple loans, according to media reports.

In the case of the PE market, there have been no cases of fraud and default, industry sources said.

“China’s import PE market is healthy,” a market player said.

The new policy just affects the issuance of LC and has no bearing on shipments, delivery, re-exports, and yuan-denominated trading of cargoes, industry sources said.

In Tianjin port, the biggest in northern China, a trader defaulted on delivery of over yuan (CNY) 200m worth of mixed aromatics cargoes in late April in another case of commodity financing gone awry – this time, involving petrochemicals, industry sources said.

Mixed aromatics, which are mainly used as a blend stock for gasoline, have been among the commodities used in trade financing since 2009, they said.

The recent default on delivery by a trader raised concerns among players in the mixed aromatics market, industry sources said.

China imported 13% less mixed aromatics volume in May at around 478,000 tonnes compared with the previous month, according to C1 Energy, an ICIS service in China.

Currently, the country has about 400,000-500,000 tonnes of mixed aromatics in its spot market, industry sources said.

($1 = CNY6.21)

Additional reporting by Alex Feng, Amy Yu and Fanny Zhang

By Dolly Wu