HOTTER ON METALS: Qingdao, China's real commodities credit crunch

If you are a western bank or commodities warehousing firm knee-deep in Chinese repo-business, you should be worried.

More specifically, if you have either lent money against, or own or think you own title to, metal sitting in warehouses in the port of Qingdao, a seaport in Shandong province that is home to vast tonnages of aluminium, copper concentrates, alumina and iron ore – then the chances are you’re on a plane to east China right now. Authorities in Qingdao have blocked the shipment of some material as they investigate the allegedly fraudulent use of warehouse receipts multiple times to raise finance. It’s a scenario that has played out in non-LME warehouses around the world for years, and is the reason why banks will only finance commodities’ storage there up to a certain limit compared with the much more easily available credit available for official LME warehouses. The questionable authenticity of warehouse receipts has been part and parcel of doing business in China for years. Risk managers at...

Published

Andrea Hotter

June 03, 2014

02:16 GMT

New York