The US Treasury Department and the British government have taken a significant step in the ongoing response to Russia’s actions by prohibiting the acceptance of new Russian production of aluminum, copper, and nickel by the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME).
Despite the ban on new Russian metal, owners who can prove their metal was produced before April 13 are still able to have it put on LME warrant. However, there are restrictions in place for metal warrants issued after April 13, 2024. The restrictions prevent UK LME Members and clients from canceling or withdrawing the corresponding metal unless it is for a non-UK client.
The announcement of the ban came during a weekend trading closure, but there is anticipation of potential market disruption when trading resumes on Monday. Some industry sources believe the price reaction will be muted, while others suggest a surge in prices similar to the one seen after US sanctions on Rusal in 2018 could occur. Furthermore, any potential European Union sanctions would likely lead to a substantial price increase.
To address concerns about potential loopholes, British officials noted that bilateral contracts between companies, rather than through the LME, are not affected by the ban. However, trading Russian metals off the exchanges is expected to come at a discount, and the restrictions do not limit supply.
The high proportion of Russian-origin metal in LME inventories has been a point of contention for some producers and consumers, particularly since Russia’s invasion of Ukraine. The UK had previously banned the import of base metals from Russia and intends to extend the prohibition to ancillary services in coordination with international partners.
The impact of these restrictions on the metal market is yet to be fully realized, but the global response to Russia’s actions continues to evolve.
