Why LME does not allow metallurgists from Russia to use warehouses

The London Metal Exchange (LME) has banned the supply of Russian non-ferrous metals to its warehouses located in the UK, the LME reported on April 1. The ban applies to the supply of copper, lead, aluminum and aluminum alloys.

The exchange explains such measures by the British sanctions against the supply of non-ferrous metals from Russia. “Due to the decision of the British government to impose 35% additional duties on imports of Russian copper, lead, primary aluminum and aluminum alloys, we have announced the immediate suspension of the placement of these Russian brands [металлов] in warehouses in the UK, unless they were exported from Russia before March 25, 2022, “- said in a statement.

The release explains that due to the duties, non-ferrous metals from Russia will be supplied with significant additional costs, which can lead to the risk of rising prices and “disordered market conditions.”

The list of producers covered by the LME includes Norilsk Nickel (produces copper), the Ural Mining and Metallurgical Company (copper), UC Rusal (aluminum and aluminum alloys), as well as Permtsvetmet, SEAL and K (SEAL and K). both – aluminum alloys) and “Frigate” (lead). At the same time, the exchange clarifies that currently in the warehouses of LME in the UK “there are no specified Russian metals, as well as non-ferrous metals produced in Belarus.”

On March 15, 2022, after the start of a special operation by the Russian military in Ukraine, the British government imposed increased import duties of 35% on a number of goods from Russia and Belarus, including steel, iron ore, copper, aluminum, silver, lead, fertilizers, wood, cement, etc. On March 22, Matthew Chamberlain, the head of the LME, said that the exchange was negotiating with the government on whether it should continue to ship Russian metals to its warehouses.

The decision to ban shipments did not affect the dynamics of trading on the LME on April 1. Three-month futures for aluminum at 19:30 Moscow time fell by 1.2% to $ 3450 / t, copper fell by 0.4% to $ 10332 / t, lead rose by 0.6% to $ 2430 / t.

Vedomosti sent inquiries to Norilsk Nickel, UC Rusal, the Ural Mining and Metallurgical Company and other paint manufacturers, as well as the Ministry of Industry and Trade. A Vedomosti source in one of the metallurgical companies said that there was nothing behind the LME statement but political background. “The metal of Russian suppliers, which received a ticket to the LME, is placed in stock exchanges around the world. According to LME itself, it is not in warehouses in the UK now. Therefore, the practical meaning of the ban is not clear, “he said.

As the decision of the exchange concerns only LME warehouses located in Great Britain, these measures should not have a significant negative impact on Russian metal producers, says senior analyst at Aton Andrei Lobazov

In today’s situation, this decision is irrelevant, agrees Finam analyst Alexei Kalachev. In March, the UK imposed a significant tariff on imports of these metals from Russia, before that the LME greatly raised the cost of storing metals in warehouses, which simply stopped them in demand and demand shifted to other countries. Britain’s share in the consumption of Russian non-ferrous metals is also small, he added.

LME warehouses are located not only in the UK, but also in other countries – in Europe, North America and Asia, reminds Oksana Lukicheva, an analyst at commodity markets “Opening Investments”. If it is a question of a complete ban on the access of Russian metals to the stock exchange and the falling volumes will not be replaced quickly, then the LME may lose the status of the leading commodity exchange, she said. This is due to the fact that a significant share of reserves on the LME is formed from Russian metals, the analyst explains. “For the stock exchange, this is, first of all, a political step, as its stocks are now at historical lows. LME trading volumes continue to fall, and trade activity is gradually flowing into Asia, ”Lukicheva said.

Kalachev also points out that metal reserves are important for securing fixed-term contracts, but this does not prevent producers from conducting direct transactions with consumers at the prices of the same LME. “In general, the metal market is now volatile, but if Europe does not abandon Russian supplies of colormet, there will be no significant increase in prices,” – added the analyst.

At present, the metal market is not reacting to the LME’s decision, as in the near future demand will decline slightly due to lockdowns in China, and this will also contribute to the likely slowdown in world economic growth, Lukicheva said. According to her, in the near future prices for copper, aluminum and lead may fall slightly. According to the forecast of Otkrytie Research, prices for aluminum are expected to fall to $ 2500-3000 / t, copper to $ 8500-9400 / t, and lead to $ 2100-2300 / t.

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