Metals Market in Turmoil as US and UK Sanctions Shake Up London Metal Exchange
Metals markets were thrown into chaos as aluminum prices surged to a record high before quickly reversing course, following US and UK sanctions that banned the delivery of new Russian supplies onto the London Metal Exchange. The sanctions, announced late Friday, targeted aluminum, nickel, and copper.
While the restrictions do not prevent Russia from selling its metals to buyers outside the US and UK, they are expected to have a significant impact on the industry due to the LME’s central role as a benchmark for global prices. The ability to deliver on the LME is crucial for many buyers, and the sanctions are likely to disrupt trade flows.
According to metals strategist Amy Gower, the sanctions could lead to temporary price increases for copper, aluminum, and nickel. The initial reaction in the market was volatile, with aluminum jumping as much as 9.4% before settling at a 1.9% increase, while nickel also experienced fluctuations.
Russia, a key metals producer, faces significant challenges as a result of the sanctions, aimed at limiting President Vladimir Putin’s ability to finance his military operations. The restrictions bar new Russian supplies of the three metals to the LME and the Chicago Mercantile Exchange, but allow for delivery of metal produced prior to April 13.
Despite the potential disruptions, industry experts believe that the impact of the sanctions may not be as severe as past events like the nickel short squeeze in March 2022. Russian metal giants Rusal and MMC Norilsk Nickel are better prepared for sanctions, and China is likely to emerge as a key buyer for Russian metals.
As the metals market grapples with the repercussions of the sanctions, the LME’s decision to allow the delivery of “old” Russian metal is expected to spark further debate over the exchange’s role as the home of global benchmark prices. The uncertainty caused by the sanctions could lead to a flood of Russian metal onto the exchange, creating pricing dislocations in the market.
