A subsidiary of China's Tianjin port said iron ore stored in a private warehouse had been illegally released by an undisclosed agent and trading firm.

The move led Tianjin Port No. 5 Stevedoring Co Ltd to block the release of some iron ore stocks and has prompted checks by customers on the fate of their holdings stored at the port.

Oversight of China's ports has been under scrutiny since a scandal last year at Qingdao port involving commodity financing where a private trading firm is alleged to have duplicated warehouse certificates to pledge a metal cargo multiple times as collateral for loans.

Using commodities as collateral to raise money is common in China and not illegal, but duplicating receipts to repeatedly mortgage the full value of an asset is fraud and could leave more than one creditor holding claims to the same collateral.

New examples of irregularities at ports will raise fresh concerns about the risks of storing commodities in China and commodity financing, traders say.

Tianjin Port No. 5 Stevedoring Co, a unit of the listed port operator, Tianjin Port Holdings Co Ltd, said in a memo sent to clients and dated May 29, 2015, that an unnamed logistics agent had acted with a trading firm, also not named, to release cargoes without authority or paying port fees. An agent is normally required to obtain a certificate issued by the port, pay management fees and present paperwork issued by a shipping firm and customs to take away stocks, said the memo, whose contents were verified by the company's lawyer.

A spokesman for the main Tianjin port operator said the company was still looking into the matter and calls to the customs agency in the city were not answered.

Iron ore access According to a source with knowledge of the situation, a unit of Zhejiang Materials Industry Group had imported iron ore on behalf of a small trading company after receiving a deposit, but the ore was then removed from the private warehouse without the state-owned firm's knowledge before a full payment was made.

This means that the unit faces a potential loss because it paid in full for the iron ore it imported.

The unit, Zhejiang Materials Industry International Co. Ltd, confirmed that it had imported the cargo and was still investigating its whereabouts. It was not clear the exact tonnage of iron ore involved, but a capsize vessel typically carries about 170,000 tonnes of iron ore currently worth nearly $11 million.

Another state-owned trading firm, Tewoo Group Co. Ltd, said in an email that a subsidiary had not been able to access some of its iron ore stocks at the private warehouse in the port.

The lawyer for Tianjin Port No. 5 said some stocks had been frozen but did not specify who the owners were and declined to comment further, referring to the information in the memo. Tianjin port is the world's 10th largest port and located near Hebei province, China's top steel-producing region.

Restrictions by Chinese authorities on bank credit have encouraged the use of stored commodities - ranging from copper to rubber and iron ore - for financing. China launched an investigation into suspected fraud at Qingdao in May last year and there has been no official comment on its outcome.

Western banks such as Citigroup Inc and trading houses have filed lawsuits in a bid to recover hundreds of millions of dollars over soured metals financing deals linked to Qingdao.

Citigroup told Reuters last week it now has no metals financing clients in China and was reviewing the future of the business.

4-month high Iron ore held at its highest level in nearly four months as stocks of the steelmaking commodity at China's ports dropped for the eighth consecutive week, helping entrench a recovery in prices from this year's slump. Iron ore has risen 37 per cent from a 10-year low of $46.70 a tonne reached in April as falling port inventory reflected firm demand among Chinese mills replenishing low stockpiles.

Iron ore for immediate delivery to China’s Tianjin port added 10 cents to $63.90 a tonne on Tuesday, the highest since February 16, according to The Steel Index (TSI). Some traders at China’s ports cut prices slightly to stimulate sales, said TSI.

Inventory of imported iron ore at China's ports fell to 83.8 million tonnes as of June 5, according to consultancy SteelHome, which tracks the data. The port inventory, which has fallen 17.5 per cent this year, is at its lowest since November 2013. Among steel mills covered in a survey by Chinese consultancy Mysteel, the average inventory level of iron ore has dropped to 20 days of consumption from an average of 23 days in the first quarter, Goldman Sachs said in a report on Monday.

On Wednesday, the most-traded September iron ore contract on the Dalian Commodity Exchange was up 0.2 per cent at 437 yuan ($70) a tonne by the mid-day break.

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