Public Commentary: This memorandum provides a technical assessment of certain metals-repo structures. It is not trade-finance advice and does not constitute an offer to transact.
Metals Repo Financing: Why “Nickel Wire” & Ultrafine Copper Powder Collateral Fails Basic Due Diligence
Metals repos should operate like secured, short-dated sale-and-repurchase agreements: the lender buys exchange-deliverable inventory today and sells it back to the borrower at a pre-agreed carry. When counterparties present collateral in the form of “99.98 % nickel wire” or “3 µm ultrafine copper powder,” experienced ABL teams know the deck is stacked. These exotic forms resist independent verification; the moment a lender tests chain of title, warehouse authenticity, or assay integrity, the transaction collapses.
Guide Navigation
1. Repo Mechanics
Standard metal-repo architecture:
- Spot Leg (Day 1): Lender purchases inventory at spot − haircut (typically 10–15 %).
- Forward Leg (Day N): Borrower repurchases at spot + carry (SOFR + 450–650 bps).
- Security Package: Warehouse receipt (W/R) endorsed to lender, tri-party control agreement, all-risks insurance assignment, and often a standby LC covering price volatility.
2. Why “Nickel Wire” / “Ultrafine Powder” Gets Pushed
Fraud promoters exploit verifiability asymmetry. Neither the LME nor SHFE accepts nickel wire or sub-10 µm copper powder as deliverable brands, so:
- No public list of warrant numbers or assay references exists.
- Warehouses rarely store these forms in commercial tonnages.
- Independent inspectors lack reference specifications, delaying assays beyond deal deadlines.
By invoking obscure metallurgical grades, promoters hope lenders will rely on PDF certificates instead of demanding a physical tally.
3. ABL Underwriting Workflow
| Step | Typical Verification | Standard Outcome |
|---|---|---|
| Borrower KYC & Credit | Sanctions, UBO, trading track-record | Shell entities, minimal audits |
| Collateral Audit | Match W/R to warehouse registry; request site visit | Registry returns “no record”; visit postponed |
| Assay Validation | Cross-check SGS/CCIC certificate numbers | Lab cannot locate sample; cert forged |
| Insurance Confirmation | Verify UMR with broker/underwriter | No policy on file or lapsed for non-payment |
| Legal Opinions | Bailment & priority opinion | Title unperfected—issuer ≠ warehouse operator |
4. Legal Framework & Control
Under English law (or UCC Article 9) valid security over stored goods demands:
- Possessory perfection—control of negotiable W/R or physical possession.
- Contractual bailment—warehouse acknowledges lender as bailor.
- No adverse claims—goods are ascertained and segregated.
In exotic-metal proposals those conditions fail: W/R issuer, warehouse operator, and inventory owner are related parties; bailment is missing; descriptions are generic (“bundles”, “super sacks”) with no seal or lot numbers—making perfection impossible.
5. Where These Deals Collapse
- Warehouse Call: One phone enquiry shows W/R number invalid.
- Site-Visit Scheduling: Borrower stalls—“port congestion”, “safety induction”.
- Lab Cross-Check: Certificate serial traces to different commodity; PDF counterfeit.
- Insurance Verification: Broker denies policy or excludes exotic forms.
- Legal Opinion Draft: Counsel cannot confirm priority without novation; borrower refuses.
Because failure occurs within the first 48 hours of diligence, losses are limited to staff time rather than funded capital.
6. Key Red Flags & Practical Mitigants
- Untraceable Scale: Claimed collateral exceeds USD 1 billion, yet chain-of-custody evidence is a single PDF warrant.
- Absurd Valuation: Ultrafine copper powder priced at > USD 2 000 per gram —higher than gold; nickel wire quoted at six-figure USD per tonne.
- Unknown Warehouse & Inspector: Storage facility and “inspection company” have no LME/SHFE accreditation or online presence—instant disqualifier.
- Broker-Chain Camouflage: Principals refuse direct engagement, hiding behind layers of brokers and mandate letters.
- Universal DD Failure: Every verification—warrant, assay, insurance—breaks down; no tangible metal exists. Walk away immediately.
Next Step
Request FG Capital Advisors’ full red-flag matrix and ABL checklist before entertaining any metals-repo proposal.
This article targets professional investors and risk officers. Independent verification is essential before acting on any information herein.
