Monday, September 17, 2012

Ghost warehouse stocks haunt China's steel sector

http://www.reuters.com/article/2012/09/16/us-china-steel-warehouse-idUSBRE88F0EJ20120916
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.

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.

In London and New York regarding gold and silver paper markets, this is dubbed re-hypothecation.  To the layman, it's called fraud. 

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