JPMorgan Chase & Co. held the London Metal Exchange nickel contracts. According to people familiar, the contracts were backed by bags rather than metal.
Last week, the LME declared that nine nickel contracts worth approximately $1.3 million had been cancelled after it discovered “irregularities at a warehouse,” which was reported to be owned by Access World. Because LME contracts are considered unquestionable, the news was met with shock across the metals industry.
According to sources familiar with the matter, JPMorgan was the owner the nine invalidated contracts. According to people familiar with the matter, the bank recorded the material bags as deliverable against LME contracts early in 2022.
JPMorgan has not been accused of any wrongdoing. According to one person, the material was in Access World’s Rotterdam warehouse several years before the bank purchased it.
The bank will still be troubled by its central role in another nickel crisis. JPMorgan’s commodities division has been under fire since the nickel short squeeze on LME last year, when it was a key counterpart to Chinese tycoon Xiang Guangda.
JPMorgan declined comment. Fastmarkets first reported that the bank owned nine invalidated nickel warrants.
Access World stated that it is currently inspecting all locations for the “warranted bags of nickel briquettes.” However, Access World believes that the issue that led the nine warrants to be suspended was an isolated incident and only one Rotterdam warehouse.
It is not known if the bags contained nickel or if the issue was caused by theft, fraud, or error. According to the LME, warehouses are responsible of inspecting and verifying any metal. While warehouses must have insurance, physical metal traders are usually insured against theft.
After being asked by the LME to verify the warranted nickel, the discovery has sparked a larger scramble in the metals industry. Warehouse companies raced to re-inspect and weigh thousands of tons of metal over the weekend.
One person said that the LME also has been conducting its own inspections across Europe and Asia. The person stated that the mass inspection has not found any other problems with LME material so far.
JPMorgan is the largest bank in metals markets. However, it has been involved in several high-profile crises over the past year. In the wake of the nickel short squeeze that centered around Xiang’s company, Tsingshan Group Co, it reported a loss of $120 million in 2012.
It also had a financing arrangement with Maike Metals International Ltd., a Chinese copper trader.