Chinese Bond Default Shakes Global Copper Market

Reuters - UK Focus – Tue, Mar 11, 2014 18

(Excerpts)

SYDNEY/LONDON, March 11 (Reuters) - China's first domestic bond default has shaken the foundations of the copper market, stoking investor worries that financing deals that have locked up vast quantities of copper could unravel.

"A lot of that is linked to the financing deals and you start to wonder are they at risk, and I think that is what the market is indeed worried about, and that's why copper has taken the brunt," BNP Paribas (Milan: BNP.MI - news) analyst Stephen Briggs said.

The default on a bond payment by China's Chaori Solar last week signalled a reassessment of credit risk in a market where even high-yielding debt had been seen as carrying an implicit state guarantee. On Tuesday, another solar company announced a second year of net losses, leading to a suspension of its stock and bonds on the Shanghai stock exchange and stoking fears that it, too, may default.

The metals markets saw the default as a sign of tighter credit to come for users of metals and for financiers that have used the metal as collateral for borrowing, analysts said.

If their loans are not renewed and financing deals start to unravel, the investors could unload their metal supplies on to the market.

After the sharp price drops in recent days following the bond default, would-be importers in China are finding it tough to get credit.

"Right now it is very difficult for clients to issue an LC (letter of credit) to import copper because the bank loan is very tight. Also if you import the copper in China, you will lose a lot of money," one trader in Singapore said.

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