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Industry 21. February 2024

Russian aluminium piles up in LME warehouses

The London Metal Exchange (LME), the world’s largest metal exchange, does not get rid of its problems with Russian metals.

The LME Ring – the open-outcry trading floor, where each LME metal is traded in highly liquid  five-minute Ring sessions which are themselves representative of global supply and demand.
The LME Ring – the open-outcry trading floor, where each LME metal is traded in highly liquid five-minute Ring sessions which are themselves representative of global supply and demand.

By Katharina Otzen-Odrich, Contributing Editor, London Office

Difficulties with Russian metal increase substantially. Actually, stocks of Russian metals are building up in the LME’s warehouses all over the world. There are several reasons for this development. Firstly, Russian metals have not officially been placed under sanctions in Western countries. Secondly, Russia needs foreign currency, which flows in when Russian metal is sold in the Western world. Thirdly, quite some industrial metal consumers tend to shun Russian metal. Still, the LME claims the rising levels of Russian metal have not yet reached a point where the Exchange needs to take action. The LME had last year consulted its members on whether to ban Russian metals from entering its warehouses but the majority was against such a drastic step.

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Especially, three metals of Russian origin cause some problems due to their increasing volume in the LME warehouses. These three metals are copper, nickel and aluminium. For all three metals, Russia is a gigantic producer. At the end of January this year, 94 % of all copper in LME warehouses was of Russian origin – up from 58 % in late October last year. Since last year, the LME has been reporting monthly about the level of Russian metals in its warehouses. The LME members welcome this reporting. An interesting fact is that the various versions of the same metal may differ very much. Aluminium is a good example: the proportion of Russian primary aluminium is five times higher than that of aluminium alloy.

About 90% of all aluminium in LME warehouses of Russian origin

In January of last year, there were 93,750 tonnes of Russian aluminium in the LME warehouses. That equalled 41% of the aluminium total in the warehouses. In March last year, this quantity had increased to 53%, in May to 68%. Over the past summer, not much change happened. This was at least partly because some announced shipments were delayed or even cancelled. Some of these cancelled deliveries still are in the harbour of Port Klang in Malaysia. In December of last year, the arrival of Russian aluminium suddenly increased rapidly. During December, the quantity of Russian aluminium increased from 154,775 to 338,375 tonnes. At year-end 2023/24, about 90% of all aluminium in the LME warehouses was of Russian origin. In January this year, 171,000 tonnes of Russian aluminium entered the LME warehouses, by far the majority came to the warehouses in Gwangyang in South Korea, Port Klang in Malaysia and Kaohsiung in Taiwan. However, whilst more Russian metal arrived, some metal moved out of the warehouses.

The LME Ring – the open-outcry trading floor, where each LME metal is traded in highly liquid five-minute Ring sessions which are themselves representative of global supply and demand.
LME wins a clear victory regarding Nickel contracts
Very few weeks before the end of the year 2023, the London Metal Exchange (LME) did win the long fight about the Nickel disaster.

Nevertheless, whilst some European industrial consumers of aluminium avoided the Russian metal, others did not. Altogether, the so-called self-rationing of industrial consumers did not increase significantly. What helped the Russians, was the fact that Chinese industrial consumers increased their aluminium purchases at the LME substantially. However, traders in London argue that the next few months will show how big the appetite for Russian aluminium in reality is. These traders feel that it will be quite important to see how severe sanctions against Russian metals are feared. Procurement of Russian metal prohibited in UK

As already mentioned, so far there are no general sanctions against Russian metal in the Western world. The United States are the only country that has introduced a special duty on Russian aluminium. Still, the market keeps talking about so-called creeping sanctions. Actually, there is a good example of this kind. The British government on 15 December 2023 introduced measures that forbid all Britons to buy, import, procure or export and supply Russian metals. However, this does not cover the members and customers of the London Metal Exchange. These persons and companies may trade Russian metals, provided that they already have the metal. They are entitled to keep or sell this metal. But they are not entitled to accept it physically. These new British rules especially make financing deals in Russian metals much more difficult. However, all this concerns just aluminium in the form of ingots. The LME does not trade aluminium products in any other form.

Conflicting interests regarding Russian aluminium

The European Community (EU) seems to be prepared to go further than the British government. On 18 December, the EU reached an agreement on sanctioning various aluminium products, especially wire, foils and tubes of any kind. At the same time, there is some pressure within the European Union to include aluminium in the form of ingots, too. If this is accepted, it would affect the LME’s aluminium trade substantially. However, not all in the EU share the same aims. There is for example the big Federation of Aluminium Consumers in Europe (Face), which argues that Europe is heavily dependent on the import of aluminium. Up to 85 % of the total needed has to be imported. This means all ways to procure aluminium have to be accepted – including Russian aluminium. All this makes political decisions more and more difficult. This goes especially for a time when there is no end in sight for the Ukraine war – no peace, not even a truce. The insecurity of the outcome of the American elections is another problem. Still, quite a number of metal traders in London assume that the introduction of far-reaching sanctions against Russian metal is just a matter of time.

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