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Even well-known and state-owned enterprises were not spared its chilling touch.
Among the casualties are China Railway Material Group, Minmetals and Sinosteel, a major trader in Shanghai said.
Informal warehousing deals, where traders offer steel as collateral for loans they are unable to obtain from conventional banks, have rocked China’s steel industry in recent months as steel prices plunged and deals started to unravel.
The “ghost receipt” scandal is said to involve warehouse employees who prepare fake cargo receipts for the same material to secure multiple loans. While it is a commonly accepted practice to secure up to three separate loans on the same material, those involved in the scandal had been securing twice that number or more.
A sales director at Sinosteel’s Shanghai branch confirmed to Steel First that the company was embroiled in the scandal.
She had joined her colleagues to check on their steel products and move them out of suspect warehouses.
The scandal is not just restricted to Shanghai.
Over the past several weeks, many steel warehouses all over China were found to have been involved. Most of these are privately owned.
The owners of the warehouses are said to have colluded with some speculative traders in collateralising cargoes several times to get loans from banks.
“It is really severe this time. So many warehouses, traders, banks and financial institutions and even state-owned enterprises are involved,” a sales official with Shanghai Minmetals said.
Some state-owned warehouses were also found to have been involved in the scandal.
“It was the employees of those state-owned warehouses who were behind it. These warehouses will resume normal operations once they have nipped the problem in the bud,” a stockist in Tianjin said.
Market participants do not think the government can do much to solve the problem as most of the affected warehouses are privately owned.
But the incident offers a window of opportunity for state-owned traders or warehouses to expand by purchasing the affected private warehouses.
Traders will no longer trust owners of the warehouses involved in the scandal, which would leave the latter with no choice but to sell their property or lease them out to other reputable warehouse operators.
In fact, some of the affected private warehouses have already been sold or rented to state-owned ones or other big-time traders and stockists.