(Yicai Global) Aug. 16-- Thirteen firms have reported to the police the disappearance of nearly CNY6 billion (USD886.5 million) of copper concentrate from a port in northern China. Believing the incident was linked to a troubled commodity trader, it has left them concerned about lax security protocols at the port.

The 29 tons of copper concentrate went missing from Qinhuangdao port, Yicai Global learned from several of the buyers. An initial police investigation showed that Liu Yu, the businessman who controls two trading companies connected with the case, is suspected of contract fraud.

The incident involved Hesheng International Trading and Huludao Risun Trading, businesses controlled by Liu, as well as freight forwarders such as China Ocean Shipping Agency Qinhuangdao and its wholly owned unit Qinhuangdao Waidai Logistics.

The victims discovered that port security was compromised. Around Aug. 1, they were notified by China Ocean Shipping Agency Qinhuangdao, which was entrusted to carry out customs declaration and warehousing, that there was a problem with delivery, according to an executive at one of the firms.

The freight forwarder admitted that it had already released the goods to Hesheng International and Huludao Risun without the proper paperwork, the person said.

Informal Calls

On Aug. 2, Liu admitted at a meeting with all the parties involved that he usually just makes a phone call to ask the freight forwarding companies to release goods even though the service contracts state that they should verify the person's identity and the delivery documentation, the executive said. 

Yicai Global has tried to contact Liu and his companies a number of times. Staff at Ningbo-based Hesheng International said they were not aware of the situation.

The incident has left the victims concerned about risk management at the port. “Whether our goods will still be docked at Qinhuangdao in the future needs to be carefully considered,” a person at one of the other affected firms said.

Clients also have wondered whether Shanghai-listed Qinhuangdao Port, the port’s operator, was also responsible for the lost inventory. It issued a statement yesterday that said although the two freight forwarders involved share the same parent company, Hebei Port Group, with Qinhuangdao Port, the port operator does not have an equity relationship with them or Liu, it said, adding that the port does not have an obligation to verify the identities of shipment owners as a service provider.

The losses are substantial for the victims, but China's copper concentrates market should get over the incident. The country imports more than 20 million tons of the concentrate each year, so the shipment is not going to impact broader supply and demand, one of the companies told Yicai Global.

Copper Big Shot

Liu is a dominant figure in the local copper concentrates market. Shipments arriving in the coastal city are eventually sold to him or one of his partners, according to an insider at one of the 13 firms.

He used to head the procurement department at a copper company before starting his own business of copper and related products trading, according to a senior analyst in the sector.

Having worked in the copper concentrates market for about eight to nine years, a person with knowledge of his background told Yicai Global, Liu's businesses are among the domestic industry’s leaders with annual trading volume of about 1 million tons, the person added.

That gave him an upper hand in dealing with freight forwarding service providers and their clients at the port, and led to his irregular practice of taking out goods without the knowledge and permission of owners, while paying the bills later.

Market Misjudgment

That practice hit the wall recently, however, as the recent cooper price crash quickly siphoned off Liu’s available cash. “Liu admitted he misjudged the copper price trend in June,” said one of the victims. 

When copper prices crashed between mid-June and mid-July, Liu, who bet much of his available cash on an immediate bull market of the commodity, lost a lot of money in futures trading, the person added. So he was “no longer able to pay owners for goods he took earlier, which eventually exposed his illegal practice.”

Copper prices plunged between mid-June and mid-July, as the US Federal Reserve’s substantial interest rate hikes triggered concerns about a global recession. On the Shanghai Futures Exchange, the most-traded copper futures contract slumped about 26 percent in a month.

Editors: Tang Shihua, Emmi Laine