It was shocking news for them commodity industry: The venerable London Metal Exchange (LME) – which has been under criticism since last year’s price turbulence anyway – has fallen victim to nickel fraud. When buyers recently received shipments of the supposedly high-quality metal from one of their warehouses, it turned out to be sacks full of stones: the nickel was gone.
And that’s not all: one of the buyers was the retail giant Trafigura. The nickel scam is particularly poignant for the world’s second-largest commodity trader, as it is the second scam involving the precious metal in just a few weeks that the company has fallen victim to. It was only in February that the company lost half a billion euros after the nickel it had bought turned out to be low-grade carbon steel. Now one of the most powerful players in the commodities world has been tricked again – in a deal with the LME.
Since then there has been even more uncertainty than before. Because the scandal raises one question above all: where is the nickel safe if not in a warehouse licensed by the stock exchange?
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Sofa tradition: trading on the LME is still based on old rituals
Photo: Luke MacGregor / Reuters
Cases of fraud and robbery are not uncommon in commodities trading. Nickel, which is mainly used to make batteries for electric cars, is particularly vulnerable because of its high value. A single container alone can be worth $500,000. But the camps of the LME have so far been considered absolutely safe. It houses the physical commodity that is registered via “warrants” and underpins the LME’s contracts. The system was considered a global benchmark, also for metals such as aluminum and copper.
“LME warehouse receipts used to be the gold standard for warehouse receipts around the world, treated near cash equivalent,” wrote John MacNamara, CEO of consultancy Carshalton Commodities and a veteran commodity trade finance banker, on LinkedIn. “Something went terribly wrong at the LME.”
The LME series of scandals
The 146-year-old exchange, a subsidiary of the Hong Kong Stock Exchange, is the world’s premier futures market for base metals. And she has long been considered a drama queen in the industry. Most recently, LME boss Matthew Chamberlain (41) was heavily criticized because he lost money last year as a result of the price explosion due to the Ukraine-War suspended the nickel trade and canceled deals worth billions without further ado
. “Because at some point the price no longer had anything to do with reality,” Chamberlain justified the decision at the time to manager magazin
. The move has since sparked regulatory investigations and lawsuits from investors and hedge funds who feel they are missing out on big profits. An unfavorable time for a new scandal, even if only 0.14 percent of the LME’s nickel stocks are affected.
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Material of the energy transition: Nickel is mainly used for batteries, the most important producing country is Indonesia
Photo: SOPA Images / LightRocket via Getty Images
The nickel fraud was noticed when a customer reported to the stock exchange. The LME has received information that irregularities have affected a number of physical shipments of nickel from a particular facility of an LME-licensed warehouse operator, the exchange said in mid-March to the “Financial Times
” with. These “irregularities” could be recognized, among other things, by the weight of the sacks, which did not correspond to that of the nickel. The operator of the warehouse in Rotterdam, the Netherlands, is the company Access World. After being informed of the irregularities by the stock exchange, discovered They found a total of nine cases with missing nickel – 54 tons worth $1.3 million It is unclear whether the sacks ever contained nickel at all.
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Nickel cargo: A single container alone can be worth $500,000
Photo: Bloomberg / Getty Images
Access World, which until recently belonged to Trafigura’s rival Glencore, told the newspaper Bloomberg
to the fact that it was an isolated case affecting the warehouse in Rotterdam. The company did not answer a request from manager magazin.
Metal trading is an easy target for scammers
Again and again larger amounts of nickel are lost. In 2017, French and Australian banks suffered over $300 million in loan losses after uncovering forged documents for nickel stored in Asian warehouses. The Russian Sberbank also discovered in 2018 after financing that containers with loads of nickel in Rotterdam had already been emptied.
The problem is that shipping and storage information is with the metals according to Bloomberg
are often passed on in paper form. It details quantities, quality, ownership and location. This makes the goods an easy target for scammers. Some of the metals are stolen from the warehouses by gangs in sophisticated raids, the goods are exchanged or the information is falsified. Industry insiders, however, pose the greatest threat. As many smaller retailers have struggled with severe financial constraints in recent years, insiders have become more likely to cheat to cover their losses.
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In the first Trafigura case this year, when the nickel turned out to be carbon steel, the Indian metal magnate Prateek Gupta (43) is said to have been involved. At least that’s how Trafigura puts it. Gupta and his companies are said to have sold more than 1,100 containers of counterfeit nickel. Trafigura has since filed a lawsuit against him and initiated other legal proceedings. At the same time, the retail giant wants to carry out an “extensive internal audit”. However, Trafigura CEO Jeremy Weir (59) emphasized that the alleged fraud is limited to a specific line of business of Trafigura and that the company has not yet found any internal involvement of its own employees. For him it is clear: “You have to learn from such experiences.” According to Trafigura, there is no connection between the case of the tycoon and the stone bags discovered on the LME.
more on the subject
The LME is working flat out to restore confidence in the nickel market. Trading was also set to reopen on Asian trading hours two weeks ago; it was shortened after the turbulence last year. But because of the risk that other irregular deliveries might be discovered in the warehouses, the LME had initially postponed the start.
At the end of last week, the LME also announced new regulations for trade. In order to curb short-term supply bottlenecks and price explosions like a year ago, dealers, among other things, should in future also be able to offer nickel powder to cover their obligations. Whether that’s enough remains to be seen. “The LME has to work properly,” says Michael Widmer, director of metals research at Bank of America. “That’s not the case at the moment – that’s the problem.”
In any case, the LME does not want to discover sacks full of stones again. And so she once again reminded the operators of the licensed warehouses of the strict requirement to weigh the metal before it is stored.