Some copper cargoes held at China's Qingdao Port were being shipped to more regulated LME warehouses, industry sources said, as banks and trading houses took precautions over a probe into metal financing at the world's seventh-busiest port. Shares in China's Qingdao Port International Co Ltd 6198.HK, the main operator, also weakened in their Hong Kong trading debut as investors responded cautiously. The investigation is looking into whether single cargoes of metal were used multiple times to obtain financing, according to industry sources. Trading houses and banks have sent executives to the port to physically check on their exposure, while some banks have stopped new metal financing to some clients in China. Jeremy Goldwyn, a director at brokerage Sucden Financial, said some customers at the port were likely to ship metal out to more regulated London Metal Exchange (LME) warehouses "in a classic flight to quality". "Indeed, we hear metal is already en route to Korean LME locations," added Goldwyn. The LME licenses warehouses all around the world including in South Korea, Singapore and Taiwan in Asia, but is not permitted to have warehouses in China. Traders said holders of copper in Qingdao that were having difficulty obtaining finance could also be forced to deliver to LME warehouses in East Asia to raise capital. Ships carrying 10,000-20,000 tonnes of copper from Qingdao would arrive in South Korea over the coming weeks, one physical trader in Singapore estimated. Most metal financing deals in China are done outside exchanges, and in those deals warehouse receipts are used as proof of ownership of metal. This is agreed typically by a bank or a trading house with a warehouse. In contrast, in some other developed financial centres there is greater oversight. The LME licenses warehouses and monitors stocks held in exchange inventories. Copper Under Pressure London copper CMCU3 prices fell to the lowest in a month on Friday, as concerns over the probe continued to take a toll. "You're seeing material being sold for two reasons - because those financing deals are being unwound, and people who picked up material purely on a speculative basis will take profit now," one Singapore trader said. Qingdao Port said in a statement on Friday it had been asked by China's Public Security Authority to help with an investigation relating to aluminium and copper products under the name of a third-party cargo shipment agency on behalf of a cargo owner. It did not name the cargo owner or the shipment agency, and said Qingdao had not been party to the agreement between the two. The metal had merely been stored at its Danang branch. It did not say how much metal was involved, but said it was was an "immaterial proportion" of its total annual throughput. It also said none of the company's employees were under investigation. Qingdao Port International is the primary operator, handling about 76 percent of the port's total cargo last year. "Everything in Qingdao port is running normally," the operator's chairman, Zheng Minghui, told reporters at the company's listing ceremony at the Hong Kong stock exchange but declined further comment. Metal Financing International and Chinese banks have been forced to make urgent checks on the situation at Qingdao. Standard Chartered STAN.L has suspended new metal financing to some customers in China, three sources familiar with the matter said. The bank said on Friday its commodity financing business remained a key focus area and it would continue to support its clients. "We recognise that there are currently issues in China around commodity financing which we are monitoring." Citigroup Inc C.N is among banks financing copper on behalf of clients at the port, according to people familiar with the situation. The bank said: "To the extent Citi's clients are affected, Citi will work closely with the relevant authorities, warehousing companies and clients to resolve the matter." A head of trade finance at a South East Asian bank said the bank was not accepting warehouse receipts from Qingdao for the moment but would accept them from LME locations or Shanghai. He also said that metal financing was likely to continue but in tighter collateral management agreements (CMA) signed by a bank, trading company and warehouse. This is likely to be more expensive than many of the current agreements, which are only based on warehouse receipts. "The responsibilities of a CMA are very well spelled out in black and white," said the trade finance head. (Reuters)