Switzerland-based traders Glencore and IXM have ceased supplying metals to China-based metals merchant Huludao Ruisheng after the disappearance of nearly US$500 million in copper, a report in the Financial Times (FT) has revealed.

Citing people familiar with the matter, the paper reported that Glencore had some letter of credit (L/C) exposure to transactions associated with Huludao Ruisheng while Chinese state entities acting as L/C agents for the metals merchant may suffer the greatest losses in a scandal that threatens to squeeze Chinese commodity financing.

Missing copper

A total of 13 Chinese trading companies, of which 12 are state-owned, have a claim on 300,000 tonnes of Huludao Ruisheng's copper concentrate worth about US$740 million, according to the report.

But it says only one-third of that was found in warehouses, so the companies face potential losses of as much as US$490 million.

L/C exposures

Several onshore and foreign traders reportedly told the FT that the exposure of western companies to the Huludao Ruisheng scandal was limited.

"Some of those traders said the Chinese state-owned enterprises acting as L/C agents for Huludao Ruisheng - which include Jiangxi Copper International Trading, Zhuhai Huafa Group and Wanxiang Resources - are likely to have suffered the brunt of the losses," according to the report.

It added that Glencore had L/Cs in place on some cargoes that were bound for Huludao Ruisheng, but suggested that these could be diverted to avoid the scandal while the Swiss trader also had hedging arrangements in place to mitigate losses.

The FT article, Glencore cuts ties with Chinese trader over missing $500mn of copper, can be found here.

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