The ICC Banking Commission conducted its final meeting of 2024 virtually via Teams on 20-21 November. Four separate portions of the event open to Banking Commission members and ICC National Committee representatives took place.
Another troubling commodities financing controversy is unfolding in China that bears stark similarities to the Qingdao warehouse scandal of 2014, leaving nervous traders and financial institutions on edge as to whether they have been victimized by a new round of metals inventory and pricing distortions.
Multiple Chinese traders have reported to police authorities that they have been tricked into furnishing financing for artificially high aluminum stockpiles. According to Bloomberg reporting in early June 2022, at least three companies lent over CNY 500 million (USD 75 million) against metal stored in a warehouse in the city of Foshan in China’s Guangdong province that is worth substantially less than its stated value. Based on Bloomberg sources, operations at three Chinese warehouses are known to have been suspended so that on-site metal inventories can be checked. The warehouses include Foshan Zhongjin Shengyuan Warehouse Management Co., Ningbo Port Jiulongcang Warehousing Co., and Zhejiang Kangyun Storage Co.
Aluminum traded on the Shanghai Futures Exchange (SFE) dropped as rumors swirled over new alleged improprieties. Both Zhejiang-based warehouses are approved by the SFE to hold commodities against futures contracts. While Foshan Zhongjin is also on the SFE’s approved warehousing list, the metal linked to the transactions being investigated is not held with warrants registered with the exchange.
Although the perceived losses thus far are negligible compared to the Qingdao debacle of eight years ago, active players in China’s commodities financing industry are wondering if past vulnerabilities were not adequately addressed and whether ominous signs in recent aluminum trading will be substantiated and deepen. In 2014, a massive fraud emanating from Qingdao, China, involved the repeated pledging of the same collateral to obtain loans and traders procuring multiple receipts of ownership issued by warehouse sites. At least 30 court cases ensued and estimates placed total losses at approximately USD 3 billion (Oct. 2014 DCW 24). Qingdao severely impacted the commodities financing industry and forced changes in management of commodity financing in China.
One China-based LC expert contacted by DCW commented:
“This Foshan and related cases are much simpler and easier to understand than the Qingdao cases. Qingdao was very complicated not only in structure but in volume and in scale. Foshan is just repeatedly using and pledging the stock goods in a warehouse to different financing institutions or traders. These kinds of transactions do not mix into cross-border LC transactions.”
