Commodities trader Trafigura Group is facing more than half a billion dollars in losses after discovering that its purchased metal cargoes do not contain the nickel they should. nickel fraud
Trafigura has spent the past two months exposing what it believes is a systematic fraud against it. It has initiated legal action against Indian businessman Prateek Gupta and several companies associated with him, including TMT Metals and subsidiaries of UD Trading Group, Trafigura said in a statement.
The missing nickel is a blow to the company that has grown rapidly over the past decade to become one of the largest trading houses in the world. It is also a black mark on the metal trading industry, which has been plagued in recent years by stories of fake warehouse receipts, duplicate shipping documents and containers filled with painted bricks.
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Trafigura has posted a $577 million impairment charge as a result of the fraud, although the final cost could be lower if it is able to recover some cash. The group’s head of nickel and cobalt trading, Socrates Economou, is leaving the company, people familiar with the matter said. However, Trafigura said it did not believe anyone at the company was complicit in the fraud.
A person who answered the phone at UD Trading’s Dubai office did not immediately comment and said Gupta was not available. Calls to TMT Metals’ London office on Thursday afternoon went unanswered.
Trafigura has been trading with Gupta’s companies since 2015, but began reviewing the relationship last year, the people said. It had bought nickel in containers already on board ships and then resold it when the ships reached their destination.
The trade began to unravel when Trafigura detectives arrived at the port of Rotterdam just before Christmas to check the contents of a container intended to contain nickel. When they broke it open, it was full of materials of much lower value.
No nickel
“Since the end of December 2022, a small portion of the containers purchased from these companies have been inspected when they reached their destination and found to be nickel free,” Trafigura said in the statement. “The majority of shipments remain en route pending further inspection.”
Nickel is a popular metal with fraudsters. Its high value means that a single container full can be worth $500,000, but it trades in relatively large volumes and without the strict security associated with shipments of precious metals such as gold.
Other traders have been caught up in nickel for a variety of reasons over the past year, as the metal was at the center of a massive short squeeze that brought the London Metal Exchange to its knees.
For Trafigura, one of the largest energy and metals traders, the loss will raise questions about its processes for verifying transactions and checking counterparties.
It will put further pressure on Trafigura’s metals division, which was already outnumbered by the company’s energy traders. Operating profit before depreciation and amortization of the metals unit in the year to September was down 24% year-on-year, which, together with a record performance by energy traders, meant that metals contributed just 16% to the company’s total operating profit, the lowest in more than a decade.
However, the company said it still expects total earnings for the six months to March to be higher than the previous year, despite the nickel loss.
Economou is a Trafigura veteran who joined the company in 2007 and was appointed head of nickel and cobalt trading in 2016 following periods in Johannesburg developing the company’s copper and cobalt business in the Democratic Republic of Congo, and as head of refined metals for China.
He was one of Trafigura’s oldest metal traders, but missed promotion to lead the metals division when current co-heads Kostas Bintas and Gonzalo De Olazaval were appointed in 2021.
Trafigura said it “remains committed to building its presence in the high-growth battery metals markets.”
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