How much Nickel is really out there?
As stated in this story LME Ni jumped 6% on this release.
PAN offtake deal with Trafigura started this month, seems they have quite a hole to fill.
Current ship at Wyndham Port has been loading since 3Feb. Swiss Trader Trafigura Hit by Suspected Nickel Fraud, Says It Could Lose $577 Million The commodities trader said that some containers were found on arrival not to contain nickel
Traders and mining companies have raced to tap into growing demand for nickel in electric-vehicle batteries.PHOTO: BANNU MAZANDRA/AGENCE FRANCE-PRESSE/GETTY IMAGES
By Joe Wallace
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Updated Feb. 9, 2023 3:39 pm ET
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Trafigura Group thought it was buying containers full of nickel. What showed up wasn’t nickel at all, the giant commodities trader said, describing itself as the victim of a “systematic fraud” that could cost it more than half a billion dollars.
The potential loss is a black eye for closely held Trafigura, which has expanded aggressively over the past decade to become a huge, and highly profitable, player in global commodity markets. Like other trading houses and miners, Trafigura has raced to tap into growing demand for nickel, which is vital in producing batteries for electric vehicles.
The perpetrators of the alleged fraud, according to Trafigura: companies it believed were controlled by the metals trader Prateek Gupta, including TMT Metals and subsidiaries of UD Trading Group. TMT and UD didn’t respond to requests for comment, and The Wall Street Journal couldn’t reach Mr. Gupta for comment.
Trafigura said it had started legal proceedings against Mr. Gupta and the companies. It took a $577 million charge for the current financial period, reflecting the maximum potential loss from the episode.
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Metal markets have previously proved susceptible to fraud. In 2014, for example, missing copper at the Chinese port of Qingdao spawned a web of lawsuits from banks that had lent money to commodities traders and taken the metal as collateral.
Trafigura said this alleged fraud revolved around boxes of metal at sea.
The trading house had dealt with Mr. Gupta’s companies for years without any problems, a spokesperson said. But in 2022 red flags began to emerge.
Cargoes purportedly containing nickel were taking longer to arrive at their destination than expected, a spokesperson said. They were also stopping off at more ports en route than expected, the spokesperson said, and the companies stalled on showing documentation.
Trafigura said there was no evidence to suggest any of its employees were involved, and that it had been duped by false documents.
Trafigura started to inspect a small number of containers in Rotterdam, a person familiar with the matter said. When it opened them, they didn’t contain nickel, a silvery-looking metal that fetches around $30,000 a metric ton and whose price has shot up in line with demand for EVs.
Instead, the boxes had lower-value materials such as carbon steel, the person said. The financial charge Trafigura is taking reflects the hit from receiving less valuable, or in some cases potentially worthless, goods in place of the pricey nickel that it paid for.
The company’s head of nickel and cobalt trading, Socrates Economou, is leaving the company, this person added. Bloomberg News previously reported his departure.
Based in Geneva and Singapore, Trafigura is one of a clutch of companies that dominate the movement of raw materials through the world economy. The sector is largely in private hands, including Trafigura’s fierce oil-market rival Vitol. A few operators, such as Glencore PLC, are publicly traded.
Trafigura won big from both the commodity-market turmoil caused by the pandemic and the energy-market chaos sparked by war in Ukraine. It made over $7 billion in profit in its latest financial year, moving seven in every 100 barrels of oil consumed globally along with huge amounts of metal, coal and natural gas. The main beneficiaries were 1,100 senior employees who own Trafigura, who split a $1.7 billion dividend.
Trading in physical commodities, though, can be a high-risk affair. Companies like Trafigura generally seek to insulate themselves against moves in the price of oil, grains or metals. But they can still be caught out by big spikes or slumps—particularly if their banks call with huge demands for cash.
The trading houses often venture into countries where few other Western companies do business and strike deals with governments to handle the states’ natural resources. Trafigura weathered a crisis at the start of 2022 when it dashed to exit from the Russian oil market, after years cultivating ties in the Moscow oil world.
Fraud is also a major risk. This is an opaque business, and deals are struck privately, with little regulatory oversight compared with the scrutiny placed on financial markets.
A spate of alleged frauds came to light in 2020 when commodity prices tanked at the start of the pandemic. The most high-profile case was the collapse of Singaporean oil merchant Hin Leong Trading Pte. Ltd., which burned banks including HSBC Holdings PLC.
Even with the loss, Trafigura said it was on track to beat its profit from the first half of its last financial year, when it made a then-record $2.7 billion. The company’s 5.875% perpetual subordinated bonds traded Thursday at 91.85 cents on the dollar, according to MarketAxess, down slightly from 93.75 cents on Wednesday.
Nickel is still a tiny market in comparison with more actively traded metals such as copper and aluminum, let alone oil. Prices for the metal, still mainly used in stainless steel, have been extraordinarily volatile over the past year.
The Ukraine invasion pushed nickel’s value up because Russia is a major producer. That quickly spiraled into a frenzied surge in prices on the London Metal Exchange. The blowup, in turn, threatened to bring down a major Chinese producer and saddle its banks with losses. Instead, the exchange canceled trades, provoking lawsuits from other market participants.
Nickel prices jumped 6.4% Thursday on the LME after Trafigura issued its statement. —Yusuf Khan, Philip Wen and Sam Goldfarb contributed to this article.
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Write to Joe Wallace at [email protected]
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