When German miners first came across the stuff in fifteenth century Saxony, they dubbed it "Kupfernickel", or "Devil's Copper" because it looked like copper but wasn't.
Appearances can be deceptive when it comes to nickel, as Trafigura has just found out half a millennium later.
The commodity trader will take a $577 million charge in the first half of 2023 against potential losses arising from what it called a "systematic fraud" involving cargoes of nickel that were not nickel.
It's an age-old scam but this one is big, involving 1,104 containers with up to 25,000 tonnes of nickel. Or not, as Trafigura is discovering to its cost.
This year's scandal follows hot on the heels of the market blow-out in March last year, when the London Metal Exchange (LME) had to suspend nickel trading for fear of a complete market collapse.
Though unrelated, the two incidents reinforce a sense of crisis around how nickel is currently traded.
AN AGE-OLD SCAM The scam of delivering metal that isn't what it appears to be is, quite literally, as old as the hills.
The British Museum hosts a clay tablet dating from around 1750 BC, in which a Babylonian merchant called Nanni berates a supplier for trying to cheat him on a shipment of copper ingots. The Babylonians didn't have formal assaying but Nanni obviously knew he was getting dud metal, warning his supplier that "from now on I will not accept here any copper from you that's not fine quality".
Misrepresenting the quality of shipments continues to this day, particularly in the murky world of raw materials such as metals scrap and concentrate.
UK newspaper The Guardian ran a lengthy feature in September last year about a Romanian entrepreneur accused of exporting large amounts of what he claimed was copper concentrates from the disused Baia Mare mines but which turned out to be a mixture of dirt and rubble.
When it comes to trading refined metals, the scam is now more commonly perpetrated in the opaque world of stocks and cargo financing, where physical metal underpins a carousel of repurchase and credit transactions. The whole edifice can come crashing down if the metal isn't physically there or has been multi-pledged, which happened in spectacular fashion in the Qingdao warehousing scandal of 2014.
Chen Jihong, the man at the centre of a multi-pledging scam that cost banks and trading houses an estimated $3 billion was last year sentenced to 23 years in prison.
DEVILISH NICKEL Nickel has become the fraudsters' favourite industrial metal for the simple reason that it is high value, currently worth around $26,000 per tonne, and highly financialised. A nickel repo deal between Natixis and Marex unravelled in 2017 when it turned out that it was based on false receipts for metal stored by Access World, then part of Glencore. A multi-party legal tussle ended with the French bank winning a $32m claim against Marex in 2019.
ED&F Man last year won a $283m claim in the High Court in London against Singapore commodity trader Straits for what it claimed was "a carefully constructed fraud" also based on fake nickel warehouse receipts.
In Singapore prosecutors have filed 105 charges against Ng Yu Zhi, who is accused of cheating investors out of $1.1 billion for fictitious nickel trades.
Joining the list is Prateek Gupta, the Indian businessmen alleged to be at the centre of a web of companies that Trafigura accuses of misrepresentation.
A lawyer in Singapore representing Gupta and one of his companies has said: "The matter is before the courts and is therefore subjudice. Our client will respond accordingly in court." Trafigura has secured a $625m freezing order against Gupta as it goes through the laborious process of tracking down each container and opening it to see what's inside.
By the time it had filed papers in the British courts, it had inspected 156 of them, none of which held anything remotely resembling nickel.
MARKET BLOW Trafigura faces some hard questions about its compliance functions but it will weather the financial impact.
Even including the financial charge of $577 million in its first-half accounts, "the group's net profits in the first half of its 2023 financial year are expected to exceed first half 2022 net profits," it said.
The blow to an already faltering global nickel market may be longer lasting.
There is the immediate question of whether a 25,000-tonne black hole has just opened up in the nickel supply chain.
LME warehouse stocks have fallen by over 10,000 tonnes so far this year and at 45,174 tonnes are the lowest they've been since 2008. Is metal being redirected to compensate for the missing nickel or is the steady drawdown completely unrelated? It's impossible to say.
Just as it's impossible to say whether some of the recent price volatility on the LME nickel contract was down to Trafigura restructuring hedge positions.
The problem is that LME nickel trading has been volatile and unpredictable ever since last year's meltdown. Volumes in January were down by 60% on year-ago levels.
The combination of falling participation and falling exchange inventory has caused LME three-month nickel to trade skittishly across a wide $26,000-$31,000 price range this year.
There is something of a crisis of confidence in the LME's nickel price discovery role with globalCOAL planning to launch an alternative spot index for refined nickel.
There is now also a growing crisis of confidence in the world of physical nickel trading.
Trafigura is just the latest in a long list of companies to be stung on nickel financing in recent years. But the status of the company and the scale of this particular fraud makes it a headline-grabbing story.
And one that at the very least is likely to make banks even more wary of lending against nickel trades at a time when commodity financing in general has been shrinking.
Nickel could really do with a reputational break but recent
history suggests it's just a matter of time before the devil's
metal strikes again.
(Editing by Jane Merriman)
