Trafigura has spent the past two months uncovering what it believes is a systematic fraud against it. It has started legal action against Indian businessman Prateek Gupta and several companies connected to him including TMT Metals and subsidiaries of UD Trading Group, Trafigura said in a statement.

The missing nickel is a blow for the company that has grown rapidly in the past decade to become one of the world’s largest trading houses. It’s also another black mark for the metals-trading industry, which in recent years has been beset by tales of fake warehouse receipts, duplicate shipping documents and containers filled with painted rocks.

Trafigura has recorded a $577 million impairment as a result of the fraud, although the final cost could be lower if it’s able to recover some funds. The group’s head of nickel and cobalt trading, Socrates Economou, is leaving the company, according to people familiar with the matter. However, Trafigura said it does not believe that anyone at the company was complicit in the fraud.

A person who answered the phone at UD Trading’s Dubai office had no immediate comment and said that Gupta was not available. Calls made to TMT Metals’ London office on Thursday afternoon went unanswered.

Trafigura has been trading with Gupta’s companies since at least 2015, but started reviewing the relationship last year, the people said. It had been buying nickel in containers already on board ships, and then selling it on when the vessels reached their destination.

The trade began to unravel when Trafigura investigators arrived at the port of Rotterdam just before Christmas to check the contents of a container that was meant to hold nickel. When they cracked it open, it was full of much lower-value materials.

No Nickel

“Since late December 2022, a small proportion of the containers purchased from these companies have been inspected as they reached their destination, and were found not to contain nickel,” Trafigura said in the statement. “The majority of the shipments remain in transit awaiting further inspection.”

Nickel is a popular metal with fraudsters. Its high value means that a single container full can be worth $500,000, yet it is traded in relatively large volumes and without the strict security that accompanies shipments of precious metals like gold.

Other traders were caught out by nickel for different reasons in the past year, as the metal was at the center of a massive short squeeze that brought the London Metal Exchange to its knees.

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For Trafigura, one of the largest traders of energy and metals, the loss will raise questions about its processes for verifying trades and checking counterparties.

It will put further pressure on Trafigura’s metals unit, already outshone by the company’s energy traders. The metals unit’s operating profit before depreciation and amortization in the year to September fell 24% from the previous year, which together with a record performance from the energy traders meant that metals contributed just 16% of the company’s overall operating profit, the lowest in more than a decade.

However, the company said it still expects its overall profit for the six months to March to be higher than the previous year, notwithstanding 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 after stints 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 most senior metals traders, but missed out on promotion to run 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 fast-growing battery metals markets.”