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Base Metals LME Report Natalie Scott-Gray

By: Natalie Scott-Gray, Senior Metals Demand Analyst, EMEA and Asia region

The LME and CME Face Bans on Russian Material – Quick Take

 
  • Natalie Scott-Gray
  • Senior Metals Analyst
  • Natalie.scott-gray@stonex.com

On 12th April, the British Government and the U.S. Treasury Department prohibited the LME and CME respectively from accepting any Russian production of copper, nickel and aluminium produced on or after the 13th April. 

Please note: Russia is responsible for 9% of global nickel output, 4% of copper and 6% of aluminium. 

LME Intra-Day Price Performance 1M

Source: Bloomberg

How Have the Markets Reacted?

Aluminium and nickel rose sharply in morning trading, with aluminium posting a 9.4% jump (its largest move since the current contract opened in 1987), while nickel rose 8.8% and copper to a lesser degree. However, the knee-jerk rally quickly abated with aluminium (at the time of writing) up 2.3%, with copper up 0.3% and nickel down -0.5%. 

Our View 

With the announcement made over the weekend, it provided a 48-hour window for market participants to digest the latest ruling and its impact, which has more nuances this time around then we saw back in 2018 when the U.S. introduced an outright ban on Rusal, with aluminium prices soaring to seven-year highs.

Please note

•    While new production of Russian material cannot be held in the LME or CME systems, this ruling does not prevent Russia from selling its metals to buyers outside the US or UK. Its important to take into account that the majority of global trade in metals takes place directly between miners, manufactures and traders off-exchange.  

•    A percentage of material on the LME is held off-warrant and could re-enter the system.

•    The U.S. and U.K. have already had to adjust to prior sanctions on these metals in recent years. Please note in February 2023, the U.S imposed a 200% tariff on the import of Russian aluminium and its derivatives, while on 14th December 2023, the UK Government introduced amendments restricting UK Persons acquiring (including importing, supplying and delivering) Russian metal. 

 

Looking forward, while the recent ruling will not materially change the global supply and demand landscape for these metals, it will alter the availability of material on a regional basis, with premiums best set to benefit in the west, while China is likely to stock up on Russian discounted material. Having said this, the ruling comes at a time when copper is facing mounting supply risks (please read our article 'Copper Fundamentals to Undergo Significant Tightening in 2024?'), nickel is undergoing delays to mining operations (article here 'Base Metal Fundamental Trends Over the Next Three Months: Nickel') and western consumers of aluminium are facing supply chain disruption in the Red Sea. 

 

Aluminium Premiums

Source: Bloomberg
  • Base Metals

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