MMC Norilsk Nickel, the biggest palladium and refined nickel producer, has started testing a platform for digital metal tokens that may eventually account for a fifth of its sales.
“Clients, including Trafigura Group, Traxys and Umicore, have been involved in the tests,” said Vladimir Potanin, Chief Executive Officer. Potanin, Russia’s richest man, wants Nornickel to become the first major mining company to offer digital sales of metals to help make trading easier.
Ledger technology
The commodities industry is looking to digital trading systems using ledger technology to help cut costs and administration and track materials through the supply chain.
The platform will allow clients purchase tokens backed by metals, which can then be swapped for physical supplies. One benefit is that if a customer does not need all its contracted amount, it could more easily sell the unwanted volume to someone else, rather than enter potentially difficult negotiations with the supplier. “We are simply packing existing business links into a new and modern form,” said Potanin. Nornickel first announced plans for crypto tokens a year ago, but needed a venue for trading. Potanin then invested in a start-up to develop a blockchain platform built by International Business Machines Corp and based on Hyperledger Fabric for metals trading.
Nornickel aims for the tokens to account for as much as 20 per cent of its metals sales, possibly within the next couple of years. The start-up includes other investors in the UK and Russia, and more details will announced in March or April, according to Potanin, Nornickel’s biggest shareholder. Potanin said his investments in digital projects are about $100 million.
“The platform will offer all the metals that Nornickel produces, rather than just palladium-backed tokens, and other industrial partners may join later,” the CEO said. Trafigura and Traxys confirmed that they have taken part in testing.
“We believe this product will attract investor interest in metals that they have not had an ability to access efficiently,” said Traxys’ CEO Mark Kristoff.
The company looks forward to rolling it out to clients in 2020, he said. “While tokens backed by commodities are not new, they are usually done by small and mostly non-industrial companies,” said Kirill Chuyko, the head of research at BCS Global Markets.