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Exclusive: Ghost Warehouse Stocks Haunt China's Steel Sector
Reuters
By Ruby Lian and Fayen Wong
SHANGHAI | Sun Sep 16, 2012 3:07pm EDT
[font color=gray]An employee walks past columns of steel as she works at a
steel production factory in Wuhan, Hubei province, August 2,
2012. REUTERS/Stringer[/font]
Chinese banks and companies looking to seize steel pledged as collateral by firms that have defaulted on loans are making an uncomfortable discovery: the metal was never in the warehouses in the first place.
China's demand has faltered with the slowing economy, pushing steel prices to a three-year low and making it tough for mills and traders to keep up with payments on the $400 billion of debt they racked up during years of double-digit growth.
As defaults have risen in the world's largest steel consumer, lenders have found that warehouse receipts for metal pledged as collateral do not always lead them to stacks of stored metal. Chinese authorities are investigating a number of cases in which steel documented in receipts was either not there, belonged to another company or had been pledged as collateral to multiple lenders, industry sources said.
Ghost inventories are exacerbating the wider ailments of the sector in China, which produces around 45 percent of the world's steel and has over 200 million metric tons (220.5 million tons) of excess production capacity. Steel is another drag on a financial system struggling with bad loans from the property sector and local governments.
MORE
By Ruby Lian and Fayen Wong
SHANGHAI | Sun Sep 16, 2012 3:07pm EDT
[font color=gray]An employee walks past columns of steel as she works at a
steel production factory in Wuhan, Hubei province, August 2,
2012. REUTERS/Stringer[/font]
Chinese banks and companies looking to seize steel pledged as collateral by firms that have defaulted on loans are making an uncomfortable discovery: the metal was never in the warehouses in the first place.
China's demand has faltered with the slowing economy, pushing steel prices to a three-year low and making it tough for mills and traders to keep up with payments on the $400 billion of debt they racked up during years of double-digit growth.
As defaults have risen in the world's largest steel consumer, lenders have found that warehouse receipts for metal pledged as collateral do not always lead them to stacks of stored metal. Chinese authorities are investigating a number of cases in which steel documented in receipts was either not there, belonged to another company or had been pledged as collateral to multiple lenders, industry sources said.
Ghost inventories are exacerbating the wider ailments of the sector in China, which produces around 45 percent of the world's steel and has over 200 million metric tons (220.5 million tons) of excess production capacity. Steel is another drag on a financial system struggling with bad loans from the property sector and local governments.
MORE
- A bitter iron-y indeed. It appears that with one Chinese exposure after another, they look more and more like US........
[font size=5]And....... it's gone![/font]
