Fraud effect lingers on financing in metal market

Anyone even marginally involved in commodities will be aware that last year's Qingdao port incident had an immense impact on the worldwide financing trade for metals. More than a year after the discovery of large-scale collateral fraud involving warehouse receipts for metal stored at Qingdao port in Shandong province, which had been pledged multiple times as collateral to raise finance, Chinese and international banks continue to take a dim view of lending to the copper industry, and the metals sector as a whole.

How those warrants or warehouse receipts were faked and financed is another matter, but there is no doubt that almost everyone involved, including the companies that suffered losses, were part of various metals-financing chains. Banks have dramatically curbed their appetite for lending, offering lower loans against collateral and cutting credit lines, resulting in many smaller Chinese industrial companies being starved of cash. Even companies conducting legitimate deals have found themselves in the spotlight of scrutiny from financial lenders and struggling to obtain financing for commodity transactions.

In the aftermath of the scandal, both international and domestic banks have become reluctant to enter into new transactions involving funding projects that relate to Chinese-associated metals. Following the sudden withdrawal of credit to Shandong's industrial base, local governments have now become involved in the administration of credit by State-owned banks. They regularly inspect the accounts of industrial companies in an attempt to improve the situation.