Insiders: Guest Watching Copper Trade Finance
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August 08 09:10:57, 2025
In early May, the State Administration of Foreign Exchange (SAFE) issued a notice titled "Notice on Strengthening the Management of Foreign Exchange Fund Inflows." The directive aimed to enhance oversight over bank settlement and foreign exchange sales limits, as well as to tighten control over foreign exchange transactions for import and export companies. The primary goal was to curb the inflow of speculative capital, such as hot money, which could destabilize the financial system.
Since the announcement, various forms of trade financing—particularly copper financing—have drawn significant media attention. According to reports, most domestic banks have tightened their lending policies since late May, making it harder for some copper trading companies to import and issue necessary documents. This has led to operational challenges for many businesses in the sector.
Industry experts believe that the actual risks associated with copper trade financing can be managed effectively. They argue that both the government and banks should adopt a balanced approach when handling such trade financing activities. At a recent seminar on copper trade financing hosted by the Shanghai Chamber of Commerce and the Metals and Mining Trade Association, Zhang Shuijin, Secretary General of the Chamber of Commerce, highlighted the differences between the copper and steel trade sectors.
He pointed out that the copper trade industry is more market-oriented, with a well-established credit chain, lower financing costs, and relatively stable income. Companies typically engage in price preservation after importing copper, which helps eliminate price risk. As a result, the overall risk in the copper trade sector is considered manageable compared to other industries.
A representative from Yanyin Metal Trading Co. noted that over 90% of copper trading companies use hedging strategies. Some foreign banks even require full hedging as a condition for granting loans. These companies are particularly attentive to the price difference between domestic and international markets. If the price discrepancy becomes unfavorable, they may resort to entrepot trade as a final safeguard.
Cha Jihong, General Manager of Zhongrong Huixin Futures Co., Ltd., added that electrolysis copper importers often maintain positions in the futures market. Banks adjust loan amounts based on the value of these positions. He argued that a decline in copper prices does not significantly impact these enterprises, and claims that falling prices could lead to financial collapse are unfounded.
According to a bank employee, no traders have been found to have defaulted on loans. "Copper trade financing remains a safe business, and the current tightening is due to regulatory requirements," the employee said.
Cha Jihong also warned against overly broad restrictions. While he acknowledged that some risks exist in large-scale electrolytic copper trades, he stressed that industry self-regulation and effective supervision are essential. Imposing blanket restrictions across the entire copper trade sector could negatively affect operations and potentially worsen price volatility, leading to new, uncontrollable risks.
Another industry insider from a non-ferrous metal import company in Shanghai pointed out that banning domestic trade financing would essentially give an advantage to foreign investors. Zhang Shuijin emphasized the need for strict controls on false or fictitious trade practices, while supporting real imports and limited entrepot trade. He concluded that the risk in copper financing lies not in the financing itself, but in how the funds are used.