The London Metal Exchange announced on Friday that it had discovered that some shipments of nickel in one of its warehouses did not contain nickel. The exchange said it canceled nine contracts due to the crash, and would delay the relaunch of nickel trading during Asian hours—delayed since the nickel trading chaos more than a year earlier.
Media reports quickly revealed what was being delivered instead of the valuable metal: a bag of stones.
Then, on Monday, news outlets discovered an unlucky owner: Wall Street bank JPMorgan.
Nickel is used in industrial processes, including making stainless steel and other alloys. It’s also a key component in the lithium-ion batteries used to drive electric cars, meaning demand will increase as the EV boom continues.
In a statement on Friday, the LME said the fraud was “visible, among other things, in the weight of the bag.” LME-approved warehouses—those not owned by the exchange—are intended to weigh and inspect metal shipments before they are accepted into storage.
While fraudulent items may be common in the metals trading world, they are usually believed to be legitimate once they arrive at an LME-approved warehouse, Bloomberg notes.
JPMorgan probably didn’t know the supposed contents of the nickel shipment, because it was already in the warehouse when the bank bought it, Bloomberg reports. Responsibility for further checks will rest with the London Metal Exchange or its warehouse operator.
JPMorgan declined to comment.
The total amount of nickel caught in the scandal is small: 54 metric tons of nickel is just 0.1% of what the London Metal Exchange has stored in its warehouse.. At today’s prices, that number of nickels is about $1.26 million.
But this is the second scandal involving fake nickels in as many months. In February, commodities trader Trafigura said it could lose more than half a billion dollars after discovering that shipments of nickel it had bought instead contained the less valuable material.
A nickel mess
The fake nickel scandal is a blow to the London Metal Exchange, which is owned by Hong Kong Exchanges and Clearing, as it tries to recover from the trading chaos of more than a year ago.
Last March, the LME controversially suspended trading for more than a week after nickel prices surged by $100,000 a tonne. Nickel prices initially rose on supply concerns following the Russian invasion of Ukraine. That then squeezed the short sellers who had bet against the metal, including the Chinese metal tycoon Xiang Guangda, the founder of Tsingshan Holding Group.
Nickel trading was still suspended during Asian hours due to the crisis, and was scheduled to resume on March 20 – until the LME postponed resumption for another week due to the discovery of fake nickel shipments.
Several trading companies that have canceled nickel trades are now suing the London Metals Exchange. Hedge fund Elliott Management and trading firm Jane Street filed the first lawsuit last June, seeking a combined $572 million in damages.
The London Metal Exchange has dismissed the suit as “without merit,” and said it “acted to secure a fair and orderly market in the interests of the market as a whole.”
The London Metal Exchange’s decision last March will also come under regulatory scrutiny. Earlier this month, the Financial Conduct Authority, the UK’s financial regulator, said it would launch an investigation into the conduct of the LME, the first investigation into a UK-based exchange.