The London Metal Exchange has found bags full of stones at one of its warehouses instead of the nickel they were supposed to contain in the latest drama to hit the scandal-stricken metals market.
The exchange said in a notice to the market on Friday that it had “received information that a number of physical nickel shipments, out of one specific facility of an LME-licensed warehouse operator, have been subject to such irregularities”. The supposed nickel consignments were actually filled with stone, said a person familiar with the matter.
The LME added that the irregularities in the bagged nickel were “evident, from among other things, by the weight of the bags” and it “reminds licensed warehouse operators of the strict requirement to weigh all metal before it is placed” into the exchange’s approved warehouses.
The discovery comes just weeks after Trafigura, one of the world’s largest metals traders, unearthed a $577mn nickel fraud that has rocked the commodities industry.
The supposed nickel was stored in Rotterdam at a warehouse operated by Access World, which had been owned by Trafigura’s commodity trading rival Glencore until January, according to a person familiar with the matter.
Glencore declined to comment. Access World did not respond to a request for comment.
The acceptance of the fake consignment into the LME’s system is a further blow to the 146-year-old exchange’s reputation after last year’s controversial decision to cancel nickel trades following a historic surge in prices, a move which has attracted regulatory probes and lawsuits from investors.
Following the discovery, the LME asked the warehouse operator to conduct an inspection, which found nine cases of missing nickel, amounting to 54 tonnes of material worth $1.3mn. The LME has ordered all of its licensed warehouse operators to repeat inspections on nickel in storage to check for irregularities.
Trafigura announced last month that it has put a freezing order and took legal action against Indian businessman Prateek Gupta for his alleged role in selling more than 1,100 containers that were supposed to contain high-grade nickel but did not.
The Singapore-based company said in a statement that the issue “has no connection with Trafigura’s legal action against a group of companies connected to and apparently controlled by Prateek Gupta”.
The exchange declined to comment on whether the fake nickel in its warehouse was connected to the fraud uncovered by Trafigura.
In a move to restore confidence in the nickel market in the wake of last year’s controversy, the LME had been planning to reopen nickel trading during Asian hours on Monday, which has been closed since this time last year.
However, because of the risk of further discoveries of irregular nickel consignments at warehouses, the LME has postponed the reopening of trade during Asian hours by a week.
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