Energy News

Sinochem, one of China’s largest oil firms introduces warehouse receipt blockchain

oil fuel petrochemical storage

Today Sinochem unveiled its new warehouse receipt blockchain, which integrates internet of things (IoT). The state-owned firm is one of the largest oil producers in China.

The first transaction was for oil trader Beijing Longrun Kaida Petrochemical Products, which received a warehouse receipt from Nanchu Management Group. That receipt was then used to secure trade finance from China Construction Bank. The benefit is same-day financing and a 40% reduction in cost.

There have been numerous trade finance scandals where bills of lading or warehouse receipts have been used to raise finance from more than one bank. In 2014 at China’s Qingdao Port there was a significant fraud of 12.3 billion yuan ($1.83bn) that included fake metal warehouse receipts and another 3.6 billion yuan ($530 million) relating to shipping cargo. In Singapore, at least three commodities houses have collapsed this year, and fraud is also alleged in those cases.

Talking about the solution, Sun Liming, VP of Sinochem Energy High-Tech explained how its platform helps. “It uses IoT technology to monitor the goods under digital warehouse receipts closely, to ensure that each warehouse receipt directly assures the existence of goods. In addition, the platform realizes swift goods delivery, receipt pledge, as well as integration of “four flows” (the receipt flow, capital flow, contract flow, and goods flow),” said Sun. “Moreover, blockchain technology ensures that the recorded data cannot be tampered.” 

The next steps include developing the platform to involve more participants, including the Shanghai Petroleum and Natural Gas Exchange and China Association of Warehousing and Distribution.

The full anti-fraud benefits are unlikely to be achieved on any of the blockchain platforms in the early stages. That’s because an unscrupulous trader might do one financing using a blockchain platform and another for the same goods with a bank that’s not using the same solution. Until there’s interoperability between all these platforms, fraud can go undetected.

That’s one of the reasons why the Singapore government recently sponsored the blockchain-based Singapore Trade Finance Registry.

Perhaps because of that Qingdao fraud, China’s metals sector is also adopting blockchain warehouse receipts.  Qianhai Mercantile Exchange (QME) is owned by the same firm (HKEX) as the London Metal Exchange (LME) is working with Ant Financial. And state-owned steel producers Baosteel launched Ouyeel Chain for deposit certificates.

Image Copyright: Fahroni / BigStock Photo