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Will The LME Ban Trading Of Russian Metals?

 

  • The London Metal Exchange is under pressure to ban Russian supplies.
  • Many industry insiders remain concerned that Russian metal will be stockpiled at the LME, leading to global price distortion. 
  • US companies like Alcoa have been at the forefront of calls for a ban.

Via AG Metal Miner According to the latest metal news, the London Metal Exchange (LME) is in a quandary over how to handle metal supply from “sanctioned” Russia. Their frustrations continue to be enhanced by the fact that some nations, led by China, remain interested in buying up Russian stock.

Following Russia’s invasion of Ukraine, formal and voluntary sanctions came into effect. These mainly focused on Russian exports of crude oil, refined fuels, and other goods. However, the world has been a bit slow to impose “punitive” measures against Russia’s metal supply.

If there were no demand following all-around protests by importing nations, it would have been easy going for the LME. However, some countries, including Europe-based aluminum consumers, expressed displeasure over the idea of bans. The calls came despite Western producers actively called for restricting supplies by Russia. Meanwhile, such attitudes were made clear during a recent series of meetings at the industry’s annual gathering in London.

It’s worth noting that Russia produces 6% of the world’s aluminum as well as 5% and 7% of its copper and nickel, respectively.

Concerns of a Russian Stockpile Dominate Metal News

Many industry insiders remain concerned that Russian metal will be stockpiled at the LME, leading to global price distortion. As a result, some traders want the LME to stop accepting Russian metal immediately.

The fault line on the import of Russian metals finally emerged in the last 2-3 weeks. It appeared when buyers ordered over half of the copper in LME warehouses (80%) for delivery. According to this report, the buys largely came from traders planning to deliver it to Chinese consumers.

Altogether, traders requested delivery of over 70,000 tons of copper from the LME warehouses over these past few weeks. Most were earmarked for consumers in China, where premiums for physical copper remain the highest they’ve been in years.

Still, the “anti-Russia” contingent in Europe and the US continue reiterating their position not to buy copper from Russia. They’ve since added that they would be able to source the shortfall from other global destinations by next year.

Aluminum Buyers Fear Overstock as Well

It’s the same scenario on the aluminum front. One group of European consumers, including some from Italy, continue to speak out against any action by LME against Russian aluminum supplies. They warn that a ban or any government-imposed sanctions would be an “imminent and vital threat” to the European aluminum industry.

The metals industry had until October 28 to submit their opinions to the LME on this controversial issue. Obviously, that deadline has long since passed. This means the sector should be ready to hear the LME verdict anytime in the coming weeks.

Still, it’s difficult to predict where the LME will go on this one. The exchange plays a vital role in the daily functioning of the market. It supplies metals when there is a glut or parks it in its warehouses when there is an excess.

What’s more, the fear of overstock is very real. If the LME continues to accept unwanted Russian material into its warehouses and users do not buy it, it will create a stockpile. Such an event would rush through metal news channels and adversely affect prices.

Related: European Natural Gas Prices Jump As Cold Weather Closes In

Adding to the LME’s bag of woes are signals that Russian producers want to get ahead of any future restrictions by increasing their deliveries to LME warehouses.

Since last week, about 200,000 tons of aluminum have entered LME warehouses, a number that experts labeled “unusually high.” Much of the material seems to have come from India, but it has led to fears of a build-up of Russian material.

The US Could Take Pressure Off the LME

In a recent discussion paper, the LME spelled out three options for members. These included an option to continue to implement a ban or set volume limits on the amount of Russian material accepted. As of the October 28 deadline, all member feedback is in. This puts the ball back in the LME’s court.

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That said, some experts believe the decision may leave the LME’s hands entirely. After all, the US continues to actively examine options to impose tariffs or sanctions on Russian aluminum.

US companies like Alcoa have been at the forefront of calls for a ban. Russian rival Rusal has since countered these assertions, warning of marketplace price volatility.

By Sohrab Darabshaw

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