Macro

LME Cuts Off New Russian Metal Amid Sanctions, Old Stock to Flood

US and UK impose sanctions on Russian metal exports, affecting global markets and targeting $40 billion in Russian revenue.

By Athena Xu

4/13, 11:54 EDT
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Key Takeaway

  • LME bans new Russian metal post-April 13 due to US and UK sanctions but allows pre-existing stocks, risking price dislocations.
  • Old Russian stocks can flood the market, as LME aims to adhere closely to sanctions while maintaining its benchmark role.
  • Debate intensifies over handling Russian metal; 91% of LME's aluminum is Russian, highlighting significant market impact.

Sanctions Tighten on Russian Metals

The United States and the United Kingdom have escalated their financial warfare against Russia by imposing new restrictions on the trading of Russian metals, specifically targeting aluminum, copper, and nickel. These measures, effective from April 13, aim to further sever Russia's financial lifelines that support its military activities. The London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME) are now barred from accepting these metals produced after the specified date, marking a significant shift in global metal trading dynamics. Russia, a major player in the global metals market, contributes to 6% of the world's nickel production, 5% of aluminum, and 4% of copper, highlighting the potential breadth of the impact of these sanctions.

Global Market Repercussions

The LME, a central hub for global metal pricing, has announced that it will not accept new Russian metal produced from April 13 onwards, although it will continue to accept Russian metal produced before this date under strict conditions. This decision reflects the complex nature of global metal supply chains and the significant role Russian metals play in them. As of the end of March, Russian metals accounted for 36% of nickel, 62% of copper, and 91% of aluminum in LME warehouses. The sanctions are likely to cause fluctuations in global metal prices and could lead to volatility in supply chains, affecting industries worldwide.

International Coordination and Impact

The coordinated sanctions by the US and UK represent a significant effort to cut off a key revenue stream for the Russian government, targeting approximately $40 billion of Russian exports. The restrictions are part of a broader strategy to constrict Russia's economic capabilities amidst ongoing geopolitical tensions. High-profile figures such as US Treasury Secretary Janet Yellen and UK Chancellor of the Exchequer Jeremy Hunt have emphasized the importance of these measures in preventing Russia from further funding its military activities. The sanctions are designed to reduce Russia's earnings from metal exports while minimizing unwanted spillover effects on partners and allies.

Management Quotes

  • Matthew Chamberlain, CEO of LME:

    "The exchange recognized that the sanctions may cause uncertainty, leading traders to dump old Russian stocks on the LME as a safeguarding move... it is possible that a relatively large supply of Russian metal may be delivered to the exchange."