Trafigura says there has not been any structural change in banks’ appetites for financing nickel trading, despite it falling foul of a major fraud scheme as well as wider concerns about wrongdoing in the market.
The Singapore-headquartered trader announced last month it was facing estimated losses of US$577mn after uncovering “systematic fraud” allegedly carried out by a group of commodity traders connected to businessman Prateek Gupta.
Speaking at the Financial Times Global Commodities Summit in Lausanne this week, Trafigura’s co-head of metals and minerals trading acknowledged that “mistakes have been made” by the company but said the incident has not sparked nervousness among its bank partners.
“The banks are not making structural changes in how they do their business,” said Kostas Bintas, who previously spent over a decade as the trader’s head of copper and gold. “They are not moving away. We have not lost a single bank… off the back of this.”
Bintas added that Trafigura’s 30-year history in the commodities market suggests the scandal is an “isolated problem”, and that banks will continue to place their faith in larger trading houses.
“There is nothing structurally wrong with how we do our business, and our track record tells you that,” he said. “There’s an ongoing investigation, let’s see what comes out.”
Trafigura has continued to attract substantial backing from the financial sector, last week closing two oversubscribed revolving credit facilities for a total of US$5.4bn, in support of its European operations.
It has also recently clinched export credit agency-backed deals in Italy and Abu Dhabi.
However, Bintas noted that if scandals continue to emerge in the metals trading market, banks’ reluctance to lend to smaller traders could be heightened further.
He pointed to investigations being undertaken by the London Metal Exchange (LME), after it discovered irregularities associated with nickel cargoes held by a licensed warehouse operator.
The LME issued a market notice on March 17 saying nine warrants of nickel were “found to be non-conformant with the contract specifications”, with the Financial Times reporting the same day that bags at a warehouse in Rotterdam held stones rather than nickel.
“The irregularities relate to bagged nickel briquettes, and were evident from, among other things, the weight of the bags,” it said. “In this context, the LME reminds licensed warehouse operators of the strict requirement to weigh all metal before it is placed on warrant.”
The LME also urged all warehouse operators to “re-undertake relevant inspections on warranted nickel” following its findings.
Trafigura says there is “no connection” between the LME incident and the legal action being taken in the Gupta case. Bloomberg has since revealed the material in the warehouse is owned by JP Morgan, and had been in the warehouse for several years, with no allegations of wrongdoing against the US bank.
Many trade and commodity finance lenders have concentrated their focus on the larger end of the market in recent years, in part following a series of fraud scandals that emerged in 2020. Trafigura’s Bintas said fraud in the commodities trading market could see that trend continue.
“We will see banks having a flight to quality, they want to do more and more with the bigger trading houses… to address the risks that have been highlighted by the recent frauds,” he said.
Guillaume de Dardel, head of energy transition at metals at Mercuria, said at the same event: “I think flight to quality is probably a good way to put it, because there will be increased scrutiny around who different stakeholders work with.
“That sort of thing will have an impact. Generally speaking, the environment we’re in is turning towards a more ‘risk off’ type of environment.”