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Trafigura is launching a legal action against Dubai-based trader Prateek Gupta and companies “connected to and apparently controlled” by Gupta, including UD Trading and TMT Metals, it said Thursday February 9.
It is not currently clear in which legal jurisdiction the case is being brought.
UK-based TMT Metals Holding lists Gupta as a director, according to UK Companies House records. UD Trading Group’s website says it is part of multinational UD Group, which operates in metal trading and mining.
Neither company has responded to requests for comment by Fastmarkets at the time of writing.
The alleged fraud involved purchases of containerized nickel in 2022, with Trafigura claiming that “a small proportion of the containers purchased from these companies have been inspected as they reached their destination and were found not to contain nickel.”
Trafigura also claimed that the alleged fraud involves “misrepresentation and presentation of a variety of false documentation” for the cargo.
While most shipments reportedly remain in transit, and therefore await further inspection, the trader estimates that it will face a $577 million loss because of the alleged fraud.
The implied scale of the alleged fraud based upon these financials is “shocking,” according to several nickel market participants, with many raising concerns about the implications for the wider nickel market.
At present, it is not clear which form of nickel was transacted to be shipped in the containers, whether it was class-one (London Metal Exchange-deliverable material) or class-two product such as ferro-nickel.
A source with knowledge of the situation told Fastmarkets that the shipments were for 20,000 tonnes of uncut nickel cathode.
This is a significant volume of material – 20,000 tonnes of nickel represents close to 1% of total nickel production globally and more than 2.5% of global class-one nickel production globally. This volume would also represent more than 46% of the total nickel stocks currently on-warrant on the LME globally.
One trader estimated that such volume would require 880 20-foot containers.
“The sheer scale of what we are talking about is crazy,” another trader said.
Participants speculated that the two primary areas of concern in the immediate aftermath are the implications for prices and for trade financing.
In the initial aftermath of the press release from Trafigura, the LME three-month nickel price experienced significant volatility, spiking by more than $1,000 per tonne to $28,490 per tonne before eventually scaling back and then before recovering again.
The three-month price closed at $29,142 per tonne at 5pm on February 9, up 6.4% on the previous day. It traded in an intraday range of more than $1,650 per tonne.
The price has since retreated to levels prior to the publication of Trafigura’s allegations, with the three-month nickel price most recently trading at $27,995 per tonne.
Given the size of the alleged fraud, though, there could be further price volatility in the market, participants noted.
“Prices are already prone to shift,” one trader said. “If the market is now short of 20,000 tonnes of nickel, you could see a real spike, particularly in premiums.”
Physical spot premiums for uncut cathode are already significantly above historic norms in regions such as Europe. Fastmarkets assessed the nickel uncut cathode premium, in-whs Rotterdam at $400-850 per tonne on February 7.
The alleged fraud could also have been a major factor in the high-price environment on the LME in recent months, participants noted.
The LME three-month nickel price spiked above $30,000 per tonne in the past two months on December 8, December 28, January 3 and February 1.
At the time, many participants attributed these price moves to the lack of traded volumes on the LME, which left the contract vulnerable to volatility. But many now speculate that these price increases could be the result of attempts by Trafigura to close hedge positions connected to this trade.
The trading house became aware of the issue in “late December 2022” when “a small proportion of the containers purchased from these companies have been inspected as they reached their destination, and were found not to contain nickel,” it said.
“From my perspective, you would have to have a hedge position connected to such a trade due to its size,” one consumer told Fastmarkets. “If they began to discover that the first containers were not what was sold back in December, [Trafigura] will have looked to close this position.”
This hypothesis is unlikely to offer much consolation to participants in the nickel market, though, with many concerned about the current high price of the benchmark nickel contract while the exchange looks to rebuild trust and the market looks to move on from the events of March 2022.
The second primary area of concern for participants is the implications of these allegations on trade finance in nickel.
“This could have huge impacts across the market – it could make nickel unfinanceable,” a second trader told Fastmarkets.
Others agreed with these fears. A third trader warned that “some banks just stop lending [and] others raise rates” in the light of such developments, adding that “either way, we all suffer.”
The nickel market has experienced other instances of fraud – a reflection of its high value as a commodity – though fraud on the scale of these allegations is rare.
Historically, instances of fraud involving nickel have been more commonly revolved around warehousing fraud where companies are sold material that does not exist or multiple participants are allocated the same lot of material.
In 2017, for example, ANZ Bank was the victim of a nickel warehousing fraud that cost the bank more than $300 million.
That same year, Natixis sued commodity brokerage Marex for $32 million to cover losses incurred for warehouse-related forgery, with the UK High Court ruling in the broker’s favor.
Such situations regularly result in a shift in attitude from lenders to the market.
In 2021, Switzerland-based banks were recommended to adopt more standardized practices on commodity financing to “reduce potential for future losses” involving fraud.
At present, no immediate measures have been introduced in the face of these fresh allegations of fraud, although market participants are keeping a close eye on the potential repercussions, with this latest news described as another “black mark” against the nickel industry.
To get more of the latest market intelligence and insights on the nickel market, visit our dedicated nickel market page here.