Copper prices recorded their steepest drop in seven weeks on concerns that a Chinese probe into the use of metal for obtaining loans would hurt demand.

Chinese authorities are investigating whether companies used the same copper, aluminum and iron ore stocks held in Qingdao as collateral for multiple loans, several news organisations have reported.

The northeastern port city halted some shipments of aluminum and copper last week.

Standard Bank is holding its own investigation into potential irregularities at the port, and is also cooperating with authorities, the bank said in a statement.

Some investors fear the investigation will lead to a wider clampdown on lending practices involving commodities, which analysts estimate currently ties up as much as one million tons of copper.

A serious crackdown could also force companies to sell commodities they had been using as collateral, flooding the market.

China accounts for roughly 40 per cent of world copper demand.

Copper for July delivery, the most actively traded contract, closed down 1.4 per cent at $US3.0930 per pound, a three week low.

Wednesday’s drop was the biggest one day percentage decline since April 15.