The company’s chief executive officer told reporters last month during a call for the firm’s 2022 earnings that the miner-marketer’s strong controls and systems made it very confident that a comparable fraud would not be able to occur at Glencore.
Less than a month later, and the news emerged that Access World, the warehouse and logistics firm Glencore owned until January, had warranted material that was not nickel, but rocks and stones instead.
Access World is now owned by Global Capital Merchants Ltd.
But the over $1.2 million worth of fake nickel that Access World shipped from Rotterdam was warranted there at the start of 2022, when the company was still owned by Glencore, Fastmarkets understands.
Access World and Glencore both declined to comment.
According to the London Metal Exchange, nine warrants equivalent to 54 tonnes of nickel have been discovered to be non-deliverable under its contract specifications.
While it’s only a relatively small amount of metal – just 0.14% of total live stock – it marks another tale of fraud in the nickel industry at a time when the futures market is already struggling to regain liquidity.
The past nickel fraud Nagle was referring to affected Trafigura, which discovered that a number of containers were filled not with nickel but with material of much lower value, such as carbon steel and nickel alloys.
The commodities trader is now suing Indian businessman Prateek Gupta and companies connected with him in association with the scheme.
A weighing game
The key now is whether the nickel was weighed, warranted, stolen and replaced by stones at Access World facilities in Rotterdam, or arrived there as stones and was not properly weighed at all, allowing the fraud to go undiscovered for some time.
The first option would be a somewhat laborious scheme to defraud Access World and the holder of the warrants, JP Morgan; the second would be an alleged breach of duty by the warehouse.
Access World’s warehouse records will be able to demonstrate its actions in this respect.
To be an LME-approved warehouse, companies agree to weigh all underlying metal delivered for placing on warrant and ensure it conforms to relevant contract weights. All weighing equipment must be independently checked for accuracy at least quarterly, and any problems immediately rectified.
LME rules also state warehouses have an obligation to warrant holders that they aren’t aware of any latent defects in the metal and must notify the exchange as soon as they suspect any problem with a warrant such as loss, theft or damage.
Unlike other metal, nickel briquettes are bagged, with warehouses required to check producer seals, certificates of analysis and, most importantly, weigh containers rather than opening the bags for inspection.
The idea is that it would be difficult to substitute nickel with something of the same density, and therefore make the identification of fraud much easier at the weighing stage.
It would have been clear to another warehouse receiving the containers from Access World that something was amiss. When weighed, the two-tonne bags were discovered to be less than one tonne each.
The onus for liability will now be decided by when, where and how the metal was swapped for rocks.
If the nickel was stolen after being weighed and warranted, then JP Morgan’s insurance policy will kick in. If the loss is unexplained or a breach of warehouse duty is determined, Access World will be liable through its own insurance.
LME rules require approved warehouse firms to hold a minimum £500,000 ($612,000) in insurance indemnity. Obviously, insurance doesn’t always pay all claims it receives. The situation probably isn’t something Access World’s new owner was expecting when it acquired the firm from Glencore this year.
In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.
