MINORS FOCUS - Uncertainty continues over Fanya fraud for investors and market

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Martin Hayesmartin.hayes@fastmarkets.com+44 (0) 20 7337 2148

London 26/07/2016 - It has been a month since China's scandal-ridden Fanya Metals Exchange was formally closed down and its assets were seized by investigators but there is no closure yet for the Chinese investors, who have been massively defrauded, as well as specialty metals markets.

"It is a mess waiting to unravel - until that takes place, there is just no certainty about what will happen. The [minor metals] market always had its suspicions because it was not clear what it was about, who was running it and the type of [domestic] business," a European trader said.

Last month officials in Kunming, where Fanya is based, found evidence of criminal activity in alleged illegal fundraising, while the Kunming Municipal Public Security Bureau seized assets and capital including more than 70,000 tonnes of non-ferrous metals. The Bureau has arrested 19 key suspects, including Fanya founder Shan Jiuliang.

Traders have held long-standing concerns about the veracity of the exchange's inventory figures throughout its life and whether the stockpiles were as large as reported. But in early 2015 when it was still trading there were well above 75,000 tonnes of metal recorded in its stockpile. This is roughly equal to the 70,000 tonnes that have been seized.

At that time, the bulk consisted of just four metals: APT (ammonium para-tungstate) at 31,197 tonnes, antimony at 19,771 tonnes, bismuth at 19,268 tonnes and indium at 3,623 tonnes.

A total of 27,974 former Fanya investors registered with an online reporting platform for illegal fundraising between April and mid-June this year, reporting 7.8 billion yuan or $1.2 billion in lost deposits.

Investors had to lodge claims for their investments before the end of June so that the Bureau had more evidence for its investigation. Since that deadline there have been no further developments.

Fanya is in China's Yunnan Province. Its government told Kunming to investigate possible fraudulent activity last year; city police kicked off their probe on December 1.

Fanya was set up in 2011 and unravelled in 2015 when problems erupted over its Ri Jin Bao product. This guaranteed retail investors annualised returns up to almost 14 percent and also promised the right to withdraw funds at any time. But these funds were frozen in April 2015.

The exchange is believed to have manipulated electronic platform prices with other companies, including Yunnan TianHao Rare Precious Metal Co Ltd, via 'wash sales', the Yunnan government has said.

The exchange's difficulties actually began in December 2014 when it made sweeping changes to physical trading and delivery, capital clearing and reserve, emergency management and investment business regulations.

The exchange offered markets for major specialty metals such as indium, bismuth, APT, gallium, germanium, vanadium, rhodium, selenium, tellurium, dysprosium oxide and terbium oxide as well as cobalt, tungsten and silver at times.

Fanya inventory levels for some markets were significant - in indium and bismuth totalling 3,609 and 19,228 tonnes respectively when business ceased, which is far in excess of the annual global markets for these metals.

In bismuth, market prices have collapsed to 10-1/2 year lows near $4.00 per pound as the Fanya scandal unfolded - late in 2014, they were as high as six-and-a-quarter-year peaks of $12.20. 

Indium's slump has seen prices fall to 16-year lows near $200 per kilo. They reached two-and-a-half-year highs of some $750 per kilo in April 2014.

(Additional reporting by Meimei Qin, editing by Mark Shaw)



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