Trafigura faces $577 million loss on alleged nickel fraud

Trafigura found out that some cargoes it had bought didn’t contain the nickel they were supposed to, and spent two months uncovering the scheme. (Image courtesy of Trafigura.)

Commodities trader Trafigura Group will take an almost half a billion dollars charge in first half of 2023, after discovering that some nickel cargoes it bought didn’t contain the metal they were supposed to.

The Geneva-based company said the “systematic fraud” was committed by a group of companies connected to and controlled by Indian businessman Prateek Gupta, including TMT Metals and companies owned by Gupta’s UD Trading Group.

“Since late December 2022, 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 in the statement. “The majority of the shipments remain in transit awaiting further inspection.”

Trafigura noted it had started legal action against Gupta and the involved companies, with which it had traded since 2015.

The $577 million impairment could end up being lower if the metals and energy trader is able to recover some funds.

It could become a major blow to Trafigura’s earnings, as it is equivalent to more than 7% of the record $7-billion profit the company made in its 2022 financial year.

Trafigura said it had found no evidence to suggest that anyone at the company was involved or complicit in this illegal activity.

Nickel prices have soared due to worries about supplies from major producer Russia after it invaded Ukraine in 2022. They are currently trading at around $27,000 per tonne compared with $9,000 for copper.

The metal, in high demand from the electric vehicles sector for its use in the batteries that power them, has also climbed due to the cutting of large short positions, or bets on lower nickel prices. This culminated in March last year in chaotic trade, with prices soaring above $100,000 a tonne in a matter of hours.

Missing metals from orders is, unfortunately, nothing new. In 2014, “unfound” copper at China’s port of Qingdao triggered a wave of lawsuits from lenders that had financed traders taking the metal as a collateral.

Most recently, global commodity traders including Glencore (LON: GLEN) and IXM halted shipments to Chinese metals merchant Huludao Ruisheng after nearly half a billion dollars’ worth of copper went “missing” at a storage site in the country’s north.