CEO Morning Brief

Washington, London Ban Exchange Trading of New Russian Metal

Publish date: Tue, 16 Apr 2024, 11:02 PM
TheEdge CEO Morning Brief

(April 15): Washington and London on Friday prohibited the London Metal Exchange (LME), Chicago Mercantile Exchange (CME) and other metal exchanges from accepting new aluminium, copper and nickel produced by Russia.

The two countries also barred the import of the metals into the United States and Britain.

Below are key points about the move and its significance:

The cut-off point

The LME, the world's largest and oldest forum for trading metals, and CME have already complied with the new sanctions. Other major metals exchange — the Shanghai Futures Exchange (SHFE) — is regulated by China, which increased Russian metals imports since 2022.

Aluminium, copper and nickel made in Russia on or after April 13, 2024 will not be accepted for delivery to LME-registered warehouses or CME-owned facilities.

Trade of Russian metals outside of the exchanges' system is not restricted by the sanctions.

Existing stocks and metal produced before April 13

The sanctions are aimed at minimising Russian export revenue amid Moscow's ongoing war in Ukraine while also reducing the risk of market disruption.

As a result, existing stocks of Russian metal on global exchanges are exempt from the new measures. They can still be traded and withdrawn from warehouses.

This is especially important for the LME as 40% of its available metal stocks are Russian-made. The share of available aluminium stocks of Russian origin in LME-registered warehouses stood at 91% in March, while the proportion of copper stood at 62%. Russian nickel in LME warehouses amounted to 36% of the total.

If an owner of Russian metal can provide evidence that it was produced before April 13, it can still be put on LME warrant — a title document conferring ownership, the LME said.

There are, however, special regimes for the UK for such warrants: the Russian warrants which existed as of April 12 can be cancelled and withdrawn by UK persons. The warrants issued on or after 13 April are subject to restrictions that prevent UK LME members and clients from cancelling or withdrawing the corresponding metal unless they are doing so for the account of a non-UK client.

The CME does not disclose the origin of metal it has in store, but also said aluminium of Russian origin produced prior to April 13 would continue to be eligible for warranting and delivery against its futures contract.

Russian production and global supply

Russia is a major metals producer. Its share in global production is 5% of aluminium, 6% of refined nickel and 4% of copper. The US and UK officials hope the latest sanctions will increase a discount for trade of Russian metal off exchanges.

Russian aluminium producer Rusal said the new sanctions would have no impact on its ability to supply aluminium. Russian nickel and copper producer Nornickel declined to comment.

US import ban and previous moves

Physical supplies of Russian metals to the UK had already dried up as Britain banned imports in 2023. Supplies to the United States have also been tiny as Washington imposed high tariffs on imports of Russian metals last year.

In response, Rusal and Nornickel, which have not been directly targeted by the Western sanctions, have redirected a significant part of their sales from the Western countries since 2022. Asia is now Nornickel's largest sales market and accounts for 38% of Rusal's revenue.

The European Union still accepts Russian primary aluminium, though some consumers have self-sanctioned and have not been buying from Rusal. Europe contributed 28% to Rusal's revenue in 2023, and industry group European Aluminium has been calling for the EU to impose sanctions on aluminium supplied from Russia in future sanctions packages.

The latest measures by the US and UK exclude metals of Russian origin that have been substantially transformed outside the country into a foreign-made product.

The US has previously directly imposed sanctions on Russian main gold and diamond producers as well as several copper producers which are smaller than Nornickel.

Several metals such as palladium, in which Russia accounts for 42% of primary output, remain unaffected. In February, Canada imposed sanctions on Russian titanium producer VSMPO, becoming the first Western country to ban Russian supplies of the metal heavily used in aerospace.

Metals market response

LME aluminium and nickel futures jumped to multi-month highs in the Asian hours on Monday but have calmed since.

Benchmark aluminium CMAL3 was last up 2.4% to US$2,553 a metric ton from an earlier session high of US$2,728, and nickel CMNI3 was up 0.2% to US$17,820, below a session peak of US$19,355. Copper CMCU3 was up 0.5%.

The LME's daily limit for price moves is 15% for nickel and 12% for aluminium and copper.

The reaction in spreads between the LME aluminium cash and the 3-month contracts CMAL0-3 has been also volatile on Monday due to the uncertainty.

Source: TheEdge - 16 Apr 2024

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