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Nickel fraud on the London Metal Exchange

The London Metal Exchange or LME, the global hub of industrial metals trading, has detected irregularities in one of its outsourced warehouses, where the physical commodities that support the day-to-day contracts that take place in its facilities are stored. As a result, last Friday it postponed the resumption of Asian nickel trade for a week, after finding that the material did not meet contract specifications.

LME nickel irregularities

Specifically, it affected nine nickel contracts at the LME’s Rotterdam-based facility, involving some 54 tonnes of goods valued at $1.3 million. The LME reported that the setbacks were detected after receiving information about problems with a number of nickel shipments from this facility managed by one of its authorised warehouse operators. The bags in question contained stones instead of nickel and were therefore not of the correct weight. All nine orders were invalidated and the owner of the order was notified, according to the London Metal Exchange.

The issue comes a month after the Trafigura nickel fraud, who alleged that it had uncovered a fraud that it said was “systematic”, further undermining confidence in global trading of the material.

In the aftermath, Trafigura stated that “we do not own any of the nine warrants that have been invalidated by the LME”. Nor is there any connection with Trafigura’s legal action against Gupta.

The London Metal Exchange has stated that there is no reason to believe that other warehouses have been affected, but has still asked authorised traders to verify the guaranteed nickel. It said the problem was related to nickel briquettes stored in bags, so other metals that do not allow delivery in this form are not susceptible to these irregularities.

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Rise in nickel prices in recent weeks

Nickel, one of the base metals traded on the LME, has been rising steadily due to the war in Ukraine. Russia produces about 10% of nickel, and traders feared that sanctions would reduce supply and increase the price. It was consistent to expect a steady increase in the coming weeks, but due to various reasons (speculation, trader nervousness, etc.) on 4 March, nickel prices went from $29,000 to $100,000.

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