Trafigura could face a $577mn fine for alleged nickel fraud

Trafigura claims it was the victim of “systematic fraud”, and is facing a writedown of more than half a million dollars. It discovered that the nickel it bought did not contain the metal in the shipment it received.

In a statement issued on Thursday, the commodity trader stated that it discovered the alleged fraud recently and has begun legal action against a number of companies “connected with and apparently controlled by Prateek Gupta,” a Dubai-based metals trader. This includes TMT Metals as well as companies owned by UD Trading Group.

The company stated that only a small number of containers purchased from these companies were inspected since December to ensure that they didn’t contain nickel. The majority of the shipments were still in transit and “awaiting further inspection”, it said.

Privately owned Trafigura, one the largest commodity traders in the world, has strong relationships with dozens banks that provide billions of dollar of financing to support its daily operations.

In the first half 2023, an impairment charge up to $577mn related to the alleged fraud will be recorded. Trafigura stated that the fraud involved the “misrepresentation of various false documentation” of the companies.

TMT Metals is a merchant that trades in non-ferrous metals, ferroalloys, and minor metals. UD Trading Group’s website states that it is part of the UD group. It operates in metal trading and wind power generation, mining, and has revenues exceeding $4.5bn.

According to UK Companies House records, TMT Metals Holding lists Gupta as a director. He is an Indian national and a resident of the United Arab Emirates.

TMT Metals, Gupta, and UD Trading didn’t immediately respond to our requests for comment. TMT Metals representatives did not respond to requests for comment.

Nickel is the most valuable base metal. It rose 6 percent on Thursday to over $29,000 per tonne, compared to roughly $9,000 for copper. According to sources familiar with the matter, Trafigura and Gupta traded around 25,000 tonnes of nickel. However, some cargoes contained metal far less valuable than nickel.

After Russia’s invasion in Ukraine, the nickel market spiraled out of control. The London Metal Exchange had to cancel and suspend trades.

In recent years, metal trading has been the victim of a variety of frauds. In China, alone, $500mn worth copper stocks disappeared, and Maike, the country’s largest copper trader, was affected by a liquidity squeeze. Maike used metal to raise funding that was then invested in real estate.

Trafigura’s impairment is a potential hit to its earnings and equals more than 7 percent of the record $7bn net profits it made in 2022.

Trafigura stated, however, that the first-half profit for 2023 is still expected to surpass that of the previous year, suggesting that the company is on track for another strong year.

The company stated that no evidence was available to show that its traders were complicit in the fraud.

According to sources familiar with the matter, Socrates Economou is leaving the company as the head of nickel and cobalt trading for the group. Economou declined to comment.

Due to volatile energy markets, Trafigura’s earnings increased in recent years.

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