[Exclusive] Duplicate Pledges Cause Crisis of Trust in China’s Spot Metals Market
Huang Siyu
DATE:  Jun 09 2022
/ SOURCE:  Yicai
[Exclusive] Duplicate Pledges Cause Crisis of Trust in China’s Spot Metals Market [Exclusive] Duplicate Pledges Cause Crisis of Trust in China’s Spot Metals Market

(Yicai Global) June 9 -- Replicate warrants for aluminum ingots traded on China’s spot market have led to a run on the warehouses where they are stored by the traders who believed they had bought them, causing the police to intervene in some places, and leading to a collapse of confidence in the spot market, Yicai Global has learned from industry insiders.

When Ping’an Trading went to collect the aluminum ingots it purchased from a warehouse in Foshan, southern Guangdong province at the end of last month, the broker found that they had been used as a guarantee many times to raise financing from other companies, making ownership unclear.

“This is a typical case of the repeated pledge of goods. It involves high value products and a lot of spot companies, some of which are large state-owned firms,” an insider said.

On further investigation, the law enforcement agency found this to be a common occurrence. Criminals link arms with warehouses in the aluminum trade to make duplicate warehouse warrants that pledge aluminum ingots for financing several times. Victims include state-owned firms, private companies and exporters.

The incident has caused a crisis of trust in the spot market, the person said. The market has been really quiet this week and most of the deals that took place were urgent orders for immediate use of the goods. The market needs more time to assess the risks carefully before resuming normal transactions, he added.

“Trading firms want to offload spot goods that they have concerns about the ownership of, but no one is willing to buy these goods because they are afraid of disputes over the ownership,” a market insider told Yicai Global.

The slowdown in spot trading is also affecting the futures market. Investors should take a prudent wait-and-see attitude towards non-ferrous metal futures trading including aluminum in the short term, said Gu Fengda, director of Guosen Futures’ department of research and consultation.

The most active aluminum futures contract on the Shanghai Futures Exchange nudged up 0.36 percent to close at CNY20,845 (USD3,123) a ton today.

Editors: Tang Shihua, Kim Taylor

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Keywords:   Inventory Financing,Warehouse Receipt Pledge,Risk Exposure,Industry Commodity,Aluminum,Illegal Activity,Spot Market