Trafigura's Nickel Fraud: A $577 Million Loss and Legal Action

Trafigura, one of the world's largest commodity trading houses, has announced a significant financial hit due to an alleged fraud involving nickel cargoes. The company has recorded a USD577 million charge in the first half of 2023, estimated to be the maximum loss exposure related to the fraud. This substantial impairment comes despite the Group's net profits in the first half of its 2023 financial year being expected to exceed first half 2022 net profits.

The fraud, which occurred during 2022, involved containerised nickel in transit and was committed by a group of companies connected to and apparently controlled by Mr Prateek Gupta, including TMT Metals and companies owned by UD Trading Group. Trafigura has commenced legal proceedings against Gupta and the companies involved, aiming to recover the losses incurred due to the misrepresentation and presentation of false documentation for the cargo.



The alleged fraud has significant implications for the nickel market, particularly in terms of price volatility and trade financing. The scale of the fraud, involving 20,000 tonnes of uncut nickel cathode, represents close to 1% of total global nickel production and more than 2.5% of global class-one nickel production. This volume also represents more than 46% of the total nickel stocks currently on-warrant on the LME globally.

The fraud has led to substantial price volatility in the nickel market. After Trafigura's announcement, the LME three-month nickel price experienced significant volatility, spiking by more than $1,000 per tonne to $28,490 per tonne before eventually scaling back and then recovering again. Physical spot premiums for uncut cathode are already significantly above historic norms in regions such as Europe, with Fastmarkets assessing the nickel uncut cathode premium, in-whs Rotterdam at $400-850 per tonne on February 7.

The fraud case raises concerns about the implications for trade financing in the nickel market. The misrepresentation and presentation of false documentation for the cargo could lead to increased scrutiny of trade financing practices, potentially making it more difficult for companies to secure financing for legitimate transactions. The fraud case could also erode trust in the nickel market, making it more challenging for companies to secure financing based on their reputation and track record alone.

In conclusion, the alleged fraud involving Trafigura and Prateek Gupta has significant financial and market implications. The substantial financial loss and legal action taken by Trafigura highlight the importance of robust internal controls and the need for vigilance in the commodity trading industry. The fraud's impact on the nickel market, particularly in terms of price volatility and trade financing, underscores the need for increased transparency and accountability in the sector. As the legal process unfolds, it will be crucial to monitor the developments and their potential impact on the nickel market and the broader commodity trading landscape.