Copper Crime Ring Is Latest Scandal to Rock the Metals World
Mark Burton and Jack Farchy
September 2, 2023, 5:56 pm
(Bloomberg) -- The history of commodity markets is littered with fraud and risk, and the opaque trade in scrap metal is no exception. But even veterans with decades of experience say they’ve never seen anything like the scam now rocking one of the world’s top copper recyclers.
Most Read from Bloomberg
Aurubis AG revealed this week it has uncovered a large-scale fraud involving shipments of scrap metal that it uses to feed its copper smelters, with potential losses running into hundreds of millions of euros. The announcement sent the Hamburg-based company’s shares plunging, and delivered a fresh blow to confidence in the global metals industry after a string of high-profile scandals, including the nickel scam that recently ensnared trader Trafigura Group.
As Europe’s largest copper producer, Aurubis will play a crucial role in delivering the metals needed for the push into renewable energy and electric vehicles.
But just as the Trafigura case raised eyebrows in the trading world by revealing how one of the largest players missed many red flags, Aurubis’s revelations will pose tough questions for the company and Chief Executive Roland Harings about its internal controls and processes.
Read: Europe’s Top Copper Producer Aurubis Hit by Huge Metals Scam
The company has been hit by two different and possibly connected crimes, one a few months ago involving the theft of precious metals residues, and then the shock revelation this week that it has been paying for scrap material that didn’t contain the metal it was supposed to. A spokesperson for Aurubis said it is investigating a sophisticated criminal operation involving both external suppliers and complicit employees at its main smelter in Hamburg.
“My memory of this industry goes back quite a long way, and I can’t recall any similar incidents on this kind of scale,” said Michael Lion, who’s been involved in the recycling industry for more than 50 years and is one of its most well-known figures. “The very substantial sums of money involved suggest that this was an extremely well-organized operation that could well have involved a web of conspiring suppliers.”
Read: What’s Behind a String of Scandals in Metals Trading?: QuickTake
Aurubis has been in operation for more than a century, and traditionally it has fed its smelters by sourcing a combination of copper ore and various forms of metal scrap including electrical wiring and water pipes. However, in recent years it’s invested heavily in new production processes to extract copper and other metals from increasingly complex forms of scrap, including old circuit boards and — most recently — lithium-ion batteries.
Those investments have helped make Aurubis a rare success story in the European metals industry, and the company posted a record profit last year even as the energy crisis hammered producers of other power-intensive metals including aluminum, zinc and steel. Aurubis had previously forecast operating earnings before taxes of €450 million to €550 million for the 2022-23 financial year, which it now no longer expects to achieve.
Copper is one of the world’s most important industrial commodities, and its extensive use in construction and manufacturing has made it a bellwether for global economic activity. More recently, the focus has shifted to the massive amounts of copper that will be needed to wire the shift to green energy, with some forecasters warning of the risk of shortages and price spikes. Futures prices have fallen from the record levels reached last year but remain elevated by historical standards.
The sudden announcement and scale of the scam has sent tremors through the tight-knit network of traders and scrap processors that supply Aurubis.
Speaking privately, representatives at two suppliers to Aurubis and a major scrap buyer said they hadn’t heard any rumors about issues with fraud at the company or in the broader market, even after the smaller-scale theft of semi-processed precious metals in June left the industry on high alert.
There are still a lot of questions outstanding about how Aurubis found itself with a shortfall in metal that it says could mean damages in the “low, three-digit-million-euro range.”
