The ban on Russian metals unbalanced world markets

Since April 13, the USA and Great Britain have banned the consumption of aluminum, copper and nickel produced in Russia.

While metal that has already entered the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME) is still available for consumption, metal delivered after that date is non-tradable. This applies regardless of whether buyers buy the metal directly or physically deliver it to the contract exchange.

Accordingly, the metal market is slowly making sausages.

Russia produces about 6% of the world's production of nickel, 5% of aluminum and 4% of copper. However, the biggest impact of the ban is on nickel.

This is due to the fact that Russia is the world's second largest producer of grade 1 nickel after China, and grade 1 nickel is currently the only LME type. Russian aluminum also dominates LME inventories, accounting for about 90% of available metal.

Consumers are worried about what will happen next with the metals market. Could a ban on Russian metals split the markets of the LME, which accounts for about half of the reserves on average, and the CME, which has almost nothing in reserves.

So far, there are no visible changes, but the internal upheaval is happening.

It is interesting that over the past six months aluminum stamps of non-Russian origin have been massively bought from the LME.

Speculators sought and removed from the market the Indian metal, which made up about 50% of the reserves. After the ban on Russian metal, the same traders began to buy Russian warrants, withdraw them from the market, and then return them back.

Such tactics made metal from Russia impossible for Western consumers. The metal remains in speculators' warehouses until a way can be found to transport it cost-effectively to markets that do not participate in the ban, such as China or India.

Speculators are equally deeply interested in the problems of metal consumers. They are looking for ways to profit from the imbalance of the world market and… they find.

The highest prices in Europe. They are about three times higher than in Japan, the main Japanese hub in Asia. This reflects the general tension of the regions in relation to each other.

Although Japan does not import Russian aluminum, consumption by its neighbors continues to lower regional prices. For example, China almost certainly buys large volumes of the Russian aluminum it consumes at a steep discount to the LME, just as the region buys Russian oil at a steep discount to global oil prices.

Currently, the Russian metal is likely to be discounted from the LME/CME price for physical transactions. However, only those countries that do not recognize the US and UK bans will accept Russian metal.

Analysts urge us to face the truth and take it for granted that there are more and more people willing to circumvent or disobey the bans.

Only those who are afraid of being handed out by the USA and Britain will suffer.