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* Will drag on global prices at time of growing supply
* Financing crackdown has already hit copper, soybean imports
By Naveen Thukral and Anuradha Raghu
SINGAPORE/KUALA LUMPUR, May 7 (Reuters) - Chinese palm oil imports could be hit as buyers struggle for funding, the latest casualty in Beijing's crackdown on commodity financing in the face of slowing domestic demand.
That drive has already taken a toll on several products with Chinese purchases of iron ore, rubber and copper tumbling, while importers have defaulted on at least half a million tonnes of soybeans.
Reduced palm oil imports by the world's No.2 buyer of the commodity would drag further on benchmark Bursa Malaysia futures that dropped to a three-month low last week on rising output in key growers Malaysia and Indonesia.
Commodities have been commonly used for financing in China, where traders or investors borrow against a product with the aim of investing the money in high-return areas such as real estate.
But faced with slowing growth and signs that authorities will not step in every time a loan goes bad, Chinese banks are becoming more hard-nosed and selective about whom they lend to.
With traders and industry officials estimating that around 70 percent of China's palm oil imports are connected to this kind of financing, shipments are set to drop.
"Palm oil has strong fundamental demand in China but we might see inflows impacted as a result of tighter access to credit, among other factors including higher inventories at ports and higher supplies of soybean oil," said Abah Ofon, an analyst with Standard Chartered in Singapore.
China does not grow any palm oil and is second only to India in imports, buying around 6 to 6.5 million tonnes a year - around 15 percent of global trade. Mainly sold as a cooking oil, palm is also used in products ranging from ice cream to cosmetics and has a shelf-life of about two years.
Traders said it was difficult to estimate the size of any decline in imports, but edible oil industry consultant Shanghai Pansun Information & Technology Co. Ltd said it could be around half a million tonnes this year.
HUGE LOSSES
Chinese palm oil importers could end up with huge losses, with domestic prices dropping as economic growth eases. The spread between local palm oil prices in China and the cost of importing cargoes has zoomed to a loss of 1,000 yuan ($160) per tonne, said industry sources in China.
Although a trader in Malaysia said refined palm oil was this week quoted at $770 a tonne in the Chinese market, about $90 less than the cost of importing cargoes.
Buyers typically make money by selling palm oil at higher prices in the local market or suffer a marginal loss which they can recover by investing loan money in more profitable business, traders said.
"The gap in prices will result in a loss of 16 percent," said Cai Nengbin, general manager at Shanghai Pansun.
"If the losses were at 5, 6 or 7 percent, then these traders could offset them by using the money for re-financing, but 16 percent is too big."
This has resulted in palm oil stockpiles at Chinese ports climbing to 1 million tonnes compared with the usual 600,000 to 700,000 tonnes, with importers unwilling to sell at a loss.
One palm oil producer in Malaysia said China would not allow more imports because storage tanks at ports were packed to capacity.
"The financial traders in China who bought the oil have put their cargoes in storage," said the producer whose company also runs an edible oil refining plant in China. He declined to be named as he is not authorised to speak to media.
"They are keeping the oil in anticipation of the market going higher."
China's palm oil imports in January-March eased slightly to 1.47 million tonnes from 1.49 million tonnes a year ago, with traders saying a larger drop is to come. ($1 = 6.2257 Chinese Yuan) (Additional reporting by Niu Shuping in Beijing and Yayat Supriatna in Jakarta; Editing by Joseph Radford)