Metals trading has been stung by fraud in recent years — everything from fake warehouse receipts to painted rocks
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Financial Times
Harry Dempsey and David Sheppard
Published Feb 09, 2023 • 3 minute read
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Nickel is the most highly valued base metal at US$29,000 per tonne compared with roughly US$9,000 for copper. Photo by Michael Fein/Bloomberg News Trafigura has alleged it has been the victim of a “systematic fraud” and faces a writedown in excess of half a billion dollars after discovering that shipments of nickel that it purchased failed to contain the metal.
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Access articles from across Canada with one account Share your thoughts and join the conversation in the comments Enjoy additional articles per month Get email updates from your favourite authors The commodity trader said in a statement on Thursday that it had recently discovered the alleged fraud and had begun legal action against a group of companies “connected to and apparently controlled” by Dubai-based metals trader Prateek Gupta, including TMT Metals and companies owned by UD Trading Group.
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It added that a small proportion of containers purchased from these companies had been inspected since December and that they did not contain nickel. It added that the majority of the shipments were in transit and “awaiting further inspection.”
Privately held Trafigura, one of the world’s biggest commodity traders, has close relationships with dozens of banks that provide billions of dollars of financing that help underpin its daily operations.
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An impairment charge of up to US$577 million will be recorded in the first half of 2023 related to the alleged fraud, which Trafigura said involved “misrepresentation and presentation of a variety of false documentation” by the companies.
TMT Metals describes itself as a non-ferrous metals, minor metals and ferroalloys trading merchant. UD Trading Group’s website says it is part of UD group, which operates in metal trading, wind power generation and mining and has revenues in excess of US$4.5 billion and a presence in nine countries.
TMT Metals Holding lists Gupta, an Indian national and United Arab Emirates resident, as a director according to UK Companies House records.
TMT Metals, Gupta and UD Trading did not immediately respond to requests for comment. No TMT Metals representative responded when the Financial Times on Thursday visited the shared office where its London business is based.
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Nickel is the most highly valued base metal, rising 6 per cent on Thursday to more than $29,000 per tonne compared with roughly $9,000 for copper. Gupta’s companies and Trafigura traded about 25,000 tonnes of nickel but some of the cargoes were found to have held metal of far lower value than nickel, according to people familiar with the matter.
The nickel market spiralled out of control last year following Russia’s invasion of Ukraine, prompting the London Metal Exchange to suspend and cancel trades.
Metals trading has been stung by a number of frauds in recent years. Last year in China alone, $500 million worth of copper stocks went missing and Maike, the country’s largest copper trader, was hit by a liquidity squeeze after using metal to raise financing that was invested into real estate.
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The impairment marks a potentially significant hit to Trafigura’s earnings, equivalent to more than 7 per cent of the record US$7 billion net profit the company made in its 2022 financial year.
Recommended from Editorial Nickel crucial as electric vehicles take off Global nickel cartel off the table as Canada’s trade minister rebuffs Indonesia’s approach Trafigura said, however, that its first-half profit for 2023 was still expected to exceed that of the same period a year earlier, suggesting the company is on course for another strong year.
It added that there was no evidence to suggest that any of its traders were complicit in the alleged fraud.
Socrates Economou, the group’s head of cobalt and nickel trading, is leaving the company, according to people familiar with the matter. Economou declined to comment.
Trafigura’s earnings have surged in recent years on the back of increasingly volatile energy markets.
© 2023 The Financial Times Ltd