A group of Chinese companies are investigating why a commodities storage site in northern China is holding only one third of the copper concentrate they were financing, according to people familiar with the situation.

Traders from more than a dozen mostly State-owned firms gathered in Qinhuangdao city this week after becoming aware of the missing material following concerns into the borrower’s finances, said the people, who asked not to be identified as they aren’t authorized to speak publicly.

The group has a total claim on 300,000 tons of concentrate worth about five-billion yuan ($740-million), but there’s only 100 000 t at the depot, the people said. That puts the dollar value of the missing material at about $490-million.

The copper discrepancy in Hebei province comes just months after a separate dispute, spanning several locations in southern China, over missing aluminum tied to $1-billion of lending. Scrutiny of commodities financing and warehouse operations in China is growing, especially as volatile global markets expose some of the more opaque funding arrangements to greater risk.

At the center of this latest case is Huludao Risun Trading Co., a medium-sized merchant that purchases between 800 000 and one-million tons of imported copper concentrate a year for distribution to domestic Chinese smelters, said the people. The company typically relies on larger counterparties to finance the materials, and then repays the loans with interest and fees after finalizing the trade.

Nobody picked up several calls to the company’s main number, and there was no immediate reply to an email seeking comment.

RISKY BUSINESS
Commodities traders have faced a tougher environment this year as banks turn cautious in the wake of high-profile losses -- especially in the nickel market -- and huge price volatility exacerbated by Russia’s invasion of Ukraine. That’s encouraged alternative financing, in which smaller, privately-owned firms pledge their goods to large state-run traders to get funding for operations.

But that route is also exposed to risk as the growth model that’s sustained China’s economy for decades shows signs of strain. Some state-owned enterprises, including the country’s top steel mills, have asked units to cut back on operations -- including third-party trading -- to preserve cash and avoid liquidity crunches.

The impact on the spot concentrate market of the Qinhuangdao copper dispute could be limited, consultancy Mysteel said in a note on Wednesday. Chinese smelters who take material from this merchant should be able to use their existing inventory, while traders could re-route cargoes due to arrive at the Qinhuangdao site to other destinations, it said.