China’s bid to rein in exports roils aluminum stocks and prices
China’s cancellation of tax relief on exports has left the aluminum industry scrambling to assess the impact on supply flows.
Regular operations in at least three Chinese warehouses have been suspended to check on-site metal inventories, according to people with knowledge of the information.
The suspensions came after several domestic traders alleged they were duped into providing loans against artificially inflated aluminum stockpiles in one facility.
The warehouse in China’s southern Guangdong province, managed by Foshan Zhongjin Shengyuan Warehouse Management Co., halted operations after the local police received complaints from creditors, the people said, asking not to be identified as the information is private. Some traders, who lent a total of more than 500 million yuan ($75 million) against stockpiles of the metal stored in the warehouse, found earlier this week that the stockpiles were worth significantly less than that, the people said.
Read more: Chinese traders find aluminum stocks they financed may not exist
Two more warehouses in the eastern province of Zhejiang, a major import hub, have suspended normal operations. Ningbo Port Jiulongcang Warehousing Co. told clients that it was suspending orders received to withdraw metal inventories from Wednesday, according to a notice from the company seen by Bloomberg News, as well as information from several physical traders with knowledge of the matter.
Zhejiang Kangyun Storage Co., another warehouse in the same region, made a similar notice, said the traders.
The Zhejiang-based warehouses had started internal inspections to check metal inventory documents, the traders said. There was no immediate information on whether any wrongdoings had been found. Both of the firms are approved by the Shanghai Futures Exchange to hold commodities against futures contracts.
The Shanghai Futures Exchange didn’t immediately respond to a request for comment. Calls to Foshan Zhongjin and Jiulongcang seeking comment weren’t answered, while an employee contacted at Zhejiang Kangyun declined to comment.
Foshan Zhongjin is also on the Shanghai Futures Exchange’s approved warehousing list, but the metal at the center of the transactions being investigated is not held with warrants registered with the exchange.
While the amounts so far being talked about are relatively small, traders have pointed to similarities with a scandal in 2014, when one merchant fought over ownership of metal pledged many times over at warehouses in Qingdao. The cost of that incident ran into billions of dollars, sparked a crisis in the industry, and eventually changed the management of the commodities financing industry in China.
Commodities traders have faced a tougher environment in recent months as banks turn cautious in the wake of some high profile losses, particularly in the nickel market, and volatility caused by the Russian invasion of Ukraine. That’s encouraged some to seek alternative financing, including a practice used by China’s smaller, privately owned firms to pledge their goods to larger, state-run traders to obtain cash.
Aluminum prices were up 1.9% to 20,665 yuan a ton at the close of trading on the Shanghai Futures Exchange, after falling 2.5% on Wednesday.
(By Alfred Cang, with assistance from Winnie Zhu)
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