Russian metal will not go to London

Russian aluminum, copper and nickel are cut off from Western trading floors. The USA and Great Britain banned their supply to the warehouses of the London Metal Exchange and the Chicago Exchange, as well as direct import. Analysts expect the sanctions to lead to logistical problems and likely higher prices, while liquidity in metals could finally shift to the Shanghai exchange.

The United States and Great Britain have introduced a ban on the import of Russian aluminum, copper and nickel, as well as on the trading of these metals on their exchanges – the Chicago Mercantile Exchange (CME) and the London Metal Exchange (LME). US Treasury explains that as a result, “metal exchanges such as the London Metal Exchange (LME) and Chicago Mercantile Exchange (CME) will be prohibited from accepting new shipments of aluminum, copper and nickel from Russia.” The restrictions will apply to metals released after April 13. At the same time, the Ministry of Finance admitted that in some cases the import of batches of aluminum, copper and nickel may be allowed as an exception.

The ban on the import of Russian metals to the United States fixes the established state of affairs.

According to the US Census Bureau, in 2024 the country imported only $105 thousand worth of aluminum. In 2021, copper imports amounted to $100 million, nickel – $158 million, aluminum – $612 million. Then, after the outbreak of hostilities in Ukraine, Russian imports began to decline, and the United States introduced 200 percent duties on imports of Russian aluminum. As a result, in 2023, aluminum supplies amounted to $44 million, nickel — $26 million, copper — $53 thousand.

At the same time, the United States continued to purchase Russian palladium and platinum from Norilsk Nickel in relatively large volumes; current sanctions do not apply to these metals. According to Norilsk Nickel’s reporting, its income from the sale of metals to North and South America amounted to 114 billion rubles in 2023, or 10% of the company’s total revenue. According to the US Census Bureau, the Russian Federation supplied $2 billion worth of palladium and platinum to the countries in 2023. Rusal and Norilsk Nickel declined to comment.

The sanctions may have the greatest impact on exchange trading in non-ferrous metals on Western exchanges, in which Russian supplies played a key role.

Now in warehouses LME stores 400 thousand tons of Russian metal out of 1 million tons of total reserves. The lion’s share of Russian reserves falls on aluminum – 311 thousand tons, copper – 61 thousand tons, nickel – 25 thousand tons.

Following the introduction of US sanctions, LME acknowledged that they would result in uncertainty in the aluminum, copper and nickel markets. The exchange issued recommendations according to which it will not accept metal from Russia released after April 13 into its reserves. US Treasury officials believe that this will lead to a discount on over-the-counter transactions in Russian metal. At the same time, sanctions will reduce liquidity on the LME, which is already inferior to the Shanghai Exchange in this component.

Discussions on sanctions that would lead to a ban on trade in Russian metals on the LME have been ongoing for the past two years, but the platform itself has tried its best to avoid introducing such restrictions. Thus, in July 2023, the Norwegian aluminum producer Norsk Hydro proposed to the LME to reconsider the decision not to prohibit the storage of Russian aluminum in the stock exchange warehouses, since large volumes of metal of Russian origin allegedly jeopardized the reference status of its aluminum contract. LME refused, noting that aluminum from the Russian Federation continues to be consumed by many market segments. In 2022, the American Alcoa advocated for a ban.

The sanctions consolidate the already existing restrictions on the supply of Russian metals to the USA and Great Britain, comments Maxim Khudalov, chief strategist of the investment company Vector X.

The LME has called trading in Russian copper undesirable since mid-2022, and even then, aluminum supplies from Russia moved mainly to the Shanghai Exchange, as market participants were afraid to trade Russian products due to potential sanctions.

According to the analyst, logistical disruptions are now possible due to the impossibility of delivering metal to LME warehouses, but these volumes will be able to be accommodated through Asian traders. “The silver lining to this negative news could be that nickel and aluminum prices will rise. Perhaps this was precisely the goal of the Americans, to raise aluminum prices for Alcoa, which was choking on low prices,” he believes. In 2023, Alcoa’s capitalization fell by 47%.

Evgeniy Zainullin