The head of Trafigura, one of the world’s biggest commodities traders, has warned that the London Metal Exchange’s global nickel benchmark is not fit for purpose and needs reform to reflect the fast-moving battery market.
The warning came just days after the LME said it had found bags of rocks instead of nickels in one of its warehouses, dealing a further blow to contracts already experiencing low levels of liquidity.
The LME contracts for high-purity nickel, which is chemically very different from the nickel sulfate used for most battery applications. The latter has seen a surge in demand as electric vehicles grow in popularity.
Jeremy Weir, chief executive of the Singapore-based trader, told the FT Commodities Global Summit in Lausanne that the LME contract “is not right for the purpose of the global nickel industry when we include the battery market”.
“The battery market is now the largest part of the industry, so the LME contract does not necessarily reflect the fundamentals [structure] from a large part of the industry, “he said. “We have to have a contract or a contract to reflect the underlying business and we have seen a big change.”
His comments joined a growing chorus from trading houses and miners, including BHP, calling for an overhaul of the LME’s nickel benchmark.
The market has been further complicated in recent years by Chinese nickel producers in Indonesia making technological breakthroughs, leading to the proliferation of various forms of the metal that cannot be delivered to LME contracts.
The LME, which this month plans to publish an action plan detailing proposals to increase the nickel contract, said in a statement that it recognized structural changes in the market.
“Our focus now is to build liquidity in our class 1 [high-purity] nickel contract and we continue to explore ways in which we can improve the contract specifications,” he said.
The bag of rocks found in the warehouse caused the LME to cancel nine nickel warrants, worth about $1.3 million.
In a separate development, Trafigura filed a lawsuit in London last month over claims it was the victim of a $577 million nickel fraud perpetrated by Indian businessman Prateek Gupta – one of the biggest metals scandals in years.
Trafigura said it bought a container it called nickel which was later found to contain no nickel. But some containers are made of carbon steel.
In response to questions about what happened, Weir said Trafigura had conducted a thorough review of its internal operations, and concluded that no one inside the company was involved in the fraud.
“This is a very detailed audit of many aspects of the organization,” he said. “Are people involved internally? No.”
“We started making those changes and we will continue to make some changes,” he said, without elaborating
Known as the devil’s metal, nickel is the most valuable industrial metal, making it a natural choice for fraudsters.
Trafigura announced $577 million in potential losses from the case.
A spokesman for Gupta said: “We are preparing a strong response to the allegations from Trafigura and intend to share it soon.”
The defense must be submitted to the court on April 6.