Reading Signs on China’s Metals Trade

A381C2C35C9157F6B67FD07D5A200AE1In 2015, Chinese influence on industrial metal prices will be more important than ever before. Yes, they have been a powerhouse in the sector for quite some time, but what has changed over the last couple of years is their surging output after years of production capacity growth. And of the industrial metals China is involved with, copper is imported on a routine basis and plays a substantial role in their metals marketplace.

Through a skewed perspective, copper trade figures for China might be seen as a sore on the country’s manufacturing health. That being said, copper currently occupies one end on a shifting spectrum of malleable price signals regarding China’s trading practices with metals. So what Chinese trade themes are worth watching this year?

Threatening Exports

During the second half of last year, Chinese exports of base metals took off due in part to the Qingdao port scandal, which involved numerous vows around metal as collateral in China’s shadow banking sector. The conclusive effect was the flight of collateral metal from Chinese bonded warehouses to London Metal Exchange warehouses for safe-haven storage.

China flirts with the classification of products and minimally transformed metal, and uses such exports as a safety valve for surplus while raising red flags for the outside market. Their export flow of “products” soared by 20 percent to 3.67 million tons last year, and by December, reached a record high of 492,000 tons. But in January and February, exports dropped back to 379,000 tons, which are historically high and hint towards an upward trend.

The Complexity of Copper

China is continually a front-runner with any and all forms of copper imports. Their manufacturing demand drives the copper market year in and year out. Typical buyer behavior and demand for copper, both commercial and state, sees the metal as collateral. Imports on refined metals to China totaled 300,000 tons in January, and look to be slowing in February to continue on with their five-month low.

Of course, the post-Qingdao crackdown on collateral financing and buyer fallout from annual to spot contracts have the most dramatic impact on the current situation with copper. But along the way, China’s copper trade profile switch from refined metal to raw materials stirred the pot even more. All three trade segments for China with copper including refined, scrap, and concentrates will have a dramatic influence on the market in its entirety.

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Barclays Cooperates With U.S. Precious Metals Probe

barclays-bonusAs the U.S. Department of Justice (DoJ) digs deeper with its precious metals investigation, multi-national banks such as Barclays have been providing information without hesitation. The DoJ and Commodity Futures Trading Commission have 10 banks aligned in the scope of their investigation as the probe into the possible rigging of precious metals markets continues on.

Barclay’s acknowledgement of its involvement in the investigation comes after HSBC reported that the DoJ issued a request for HSBC Holdings documentation as they continue to conduct their criminal antitrust investigation. Such requests are complicating matters for a bank attempting to cut costs and improve profits while handling allegations of their traders manipulating foreign exchange markets. The bank suffered a 21-percent drop in annual net profits due to account charges, provisions and restructuring costs.

Ever since the unveiling of the Libor rigging scandal and the widespread manipulation of interest rates in foreign exchange markets, scrutiny of precious metals trading and benchmarking regulations has been tense. FINMA, a Swiss regulator, uncovered manipulation attempts of precious metals benchmarks during its investigation of foreign exchange trading at UBS last November. “The behavior patterns in precious metals were somewhat similar to the behavior patterns in foreign exchange,” said FINMA director Mark Branson.

Others involved in investigations include Germany’s Bafin, who are looking at how precious metals benchmarks are set; Britain’s Financial Conduct Authority, who are delving into gold while investigating commodity benchmarks; and of course the U.S. courts, who have multiple lawsuits filed alleging conspiracies regarding the fixing of precious metals prices. Banks involved in setting benchmarks, also known as fixes, made it clear last year that they will no longer govern the standards.

Silver benchmarks are now set by CME Group and Thomson Reuters, while the Intercontinental Exchange (ICE) will be administering new gold benchmarks. Platinum and palladium benchmarks will be handled by the London Metal Exchange.

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Precious Metals Trading Businesses Banned

gold-eagle-1-4-oz-reverseTwo companies based out of Fort Lauderdale have been banned from trading after their head executives settled by paying restitutions to customers who underwent a total of $7.8 million in losses from precious metals purchases. In early February, the U.S. Commodity Futures Trading Commission finalized charges against Paramount Metals Exchange and Paramount Credit, each located in Delray Beach, after both companies were found to have made false selling and transferring claims of physical metals to clientele.

The companies allegedly lied to their customers by telling them they would arrange the transfer and storage of their metal purchases in independent depositories where the precious metals would be stored on their clients’ behalf. The U.S. Commodity Futures Trading Commission later settled with Gold Coast Bullion and Midwest Metals after authorities purported the companies called investors, most of which were unfamiliar with precious metals, and put a down payment to buy precious metals that investors never received.

The commission had Midwest Metals and owner, Brian Steven Ekasala, pay restitutions of $322,852.71 as well as $200,000 in civil penalty fines. Midwest solicited customers to buy and sell precious metals and executed transactions through another company, Hunter Wise Commodities of Nevada. According to the commission, Midwest required customers to pay a 30 percent deposit, take a loan out and pay interest, and included additional charges for mark-up and commission.

“Gold Coast never actually delivered any precious metals in connection with these transactions, but received commissions and fees totaling more than $2.6 million,” the commission said in a written statement. “Neither Midwest nor Hunter Wise actually delivered any precious metals to any customer.”

The four companies and their top executives neither confirmed or denied guilt, which led to them paying restitutions, waiving hearings, and ending operations. Isaiah Goldman, Brock Catronio and their two associated companies paid $1,595,946 to customers along with a $1 million civil penalty fine. The money returned to customers covered their entirety of their investments lost due to trading losses, commissions, additional fees and interest charges.

Hunter Wise-related companies and their owners paid defrauded customers $52.6 in restitution, $55.4 million in civil penalty fines and are currently in receivership. Gold Coast Bullion and its president, Anthony Lauria, will pay restitutions amounting to $5.9 million and $3.75 million in civil penalty fines after having customers put down roughly 25 percent on precious metals purchases and taking out a loan to cover the remainder.

According to the commission, not all of the money lost by purchasers will be returned through restitutions since many of the companies are out of business and lack the profits to fully pay back their debts. The commission also released a general statement saying that present and future precious metals purchasers should buy directly from mint companies and take physical delivery of their products to insure the quality of their investment.

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