The commodity has proved true to its name. Singapore’s business elite may have been seduced by a 33-year-old nickel trader. Ng Yu Zhi is now facing charges for fraudulent trading.
The allegations against Ng are centred on his dealings at Envy
Asset Management and Envy Global Trading. Of the more than $1 billion that was invested in the companies, $300 million was transferred to Ng’s personal account, it was alleged. An estimated $200 million remains unaccounted for, according to prosecutors.
Ng had raised money for an unregulated nickel trading platform. Some of the top investors in Singapore were ensnared by the scheme, which lasted from 2017 to 2020. The case against him is being heard at the moment.
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Ng’s rise was improbable. He appears to have arrived in Singapore a decade ago from Fujian. The young man had little experience or pedigree in commodities. But he had immense confidence and spoke with authority on nickel.
By 2017, there were rumours about a talented trader in nickel. Several famous investors in Singapore jostled for introductions with him.
It was said that he could generate returns of 15% per quarter. Returns of this nature are rare. It would place him in the same league as the world’s greatest hedge funds,
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Investors took to nickel with gusto. Nickel had quintupled in value from 2017 to 2022. Nickel prices rose to a record US$25,000 ($33,523) per ton. The cost of production of the metal is roughly US$9,000 per ton. This means that gross margins are over 65%. The metal is highly financialised, with a liquid market of US$40 billion.
Ng did not project an austere image. He lived in a three-story villa in an elite neighbourhood. He drove a Pagani Huayra supercar that cost more than $6 million. This is the sort of vehicle that Batman might use. It was capable of speeds of 300 mph. It could take you to Kuala Lumpur in an hour.
The enthusiasm that investors showed for Ng was just as rapid. By 2021, it is alleged that he had raised over $1 billion. The scheme unravelled in 2020-2022. It was discovered that the trades may not have been legitimate.
The case against Ng should not detract investors from commodity trading. Its practitioners include Glencore, Wilmar International and Olam. US President Donald Trump’s tariff war increases the importance of these players.
Commodity traders play the same role that DHL and FedEx play in the delivery of parcels. They connect buyers and sellers for products ranging from nickel to orange juice.
These players thrive during tariffs. Commodity traders prosper by exploiting inefficiencies. Volatility in commodity prices, driven by trade disruptions, widens arbitrage opportunities. They can borrow in one market and sell high in another. Tariffs redirect trade flows. Wilmar can source soybeans from Brazil instead of the US. Traders with global networks and logistical expertise, like Wilmar, can profit by rerouting cargoes.
The traders collect margins from the difference between the seller and buyer of a commodity. The spread is a function of commodity prices. The commodity traders’ profits have been strongly correlated with commodity prices. The Goldman Sachs Commodity Index (GSCI) is an excellent proxy for commodity prices. It includes energy, agriculture and gold.
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The last decade has been cruel to commodity traders. The GSCI has fallen 37% from its peak. The ebitda margins of Glencore, Wilmar and Olam have roughly halved in this period.
The impact on the commodity traders’ stock price has been severe. They are trading at a quarter of peak valuations in 2011. Wilmar is now trading close to its highest dividend yield (5%) since its IPO in 2006. Olam’s dividend yield is even more enticing at 7%. Periods of market chaos have been kind to commodity traders. One nickel scam should not distract investors.
There are enticing opportunities in the stock market.
Nirgunan Tiruchelvam is the head of consumer and internet at Aletheia Capital and the author of Investing in the Covid Era
