A subsidiary of China's Tianjin Port said some 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 to block the release of some iron ore stocks and has prompted checks by customers on the fate of their holdings of the commodity stored at the port.

Oversight of China's ports has been under scrutiny since a scandal in 2014 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, said in a memo sent to clients dated May 29 that an unnamed logistics agent had acted with a trading firm, also not named, to release cargoes without authority or paying port fees.

"This matter was caused completely by the illegal operations of the agent and a related downstream trader and the port company did not itself sign ... or participate in any unauthorized cargo release," Tianjin Port No. 5 said in the memo, which was seen by Reuters.

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.

The memo did not name any parties or the nature of the transgression.

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.

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

The unit, Zhejiang Materials Industry International Co, 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 capesize vessel typically carries about 170,000 tons of iron ore, which is currently worth nearly $11 million.

Reuters