US, UK Clamp Down On Russian Metals Trade Due To 'Its Brutal War Against Ukraine' (UPDATED)

Zinger Key Points
  • The US and the UK banned new Russian aluminum, copper, and nickel from metal exchanges.
  • Existing stockpiles can still trade, but there are concerns about future restrictions and a potential influx of "old" Russian metal.

Editor’s Note: This article has been updated with a spelling correction in the headline.

The United States and the United Kingdom have launched new measures to disrupt Russia’s revenue stream. The latest sanctions target commodity exports by prohibiting metal exchanges from accepting new aluminum, copper, and nickel of Russian origin.

“Our new prohibitions… will continue to target the revenue Russia can earn to continue its brutal war against Ukraine,” stated U.S. Treasury Secretary Janet Yellen.

The London Metal Exchange (LME) confirmed its compliance with the sanctions, announcing that it would not accept new Russian production of the specified metals. However, existing Russian metal stocks on global exchanges will be exempt from the ban, allowing for continued trading and withdrawal to minimize market disruption.

This prohibition does not extend to bilateral contracts, allowing trade to continue, albeit likely at a discounted rate. While the action does not directly restrict supply, it is expected to reduce the revenue Russia can generate per trade.

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The significance of Russian-origin metal in LME inventories is notable. In March, 91% of aluminum stocks, 62% of copper stocks, and 36% of nickel stocks were of Russian origin. Concerns over the high share of Russian metal prompted these sanctions, reflecting a broader effort to isolate Russia economically.

Russia is a significant producer of these commodities, accounting for 6% of global nickel supply, 5% of aluminum, and 4% of copper.

The situation is further complicated by the potential influx of “old” Russian metal currently held outside the LME system. Estimates suggest this figure could reach one million tons for aluminum alone. Worrying about future restrictions, owners may try to offload this metal onto the LME, potentially triggering a price drop.

Still, the market seems to discount this possibility as this line of sanctions triggered a rally in aluminum and nickel prices on LME. Both aluminum and nickel May contracts rose about 2.3% on Monday morning. Learning from previous experiences, LME has put daily limits in place to prevent nickel from rising more than 15% in a day, while copper and aluminum have a 12% limit.

"Price-wise, the natural predilection will be higher," said Alastair Munro, a broker at Marex Group based in London, as reported by Bloomberg.

"It will be interesting to see if any funds or traders have to reduce positioning because of the increasing volatility," he added.

The long-term impact of these sanctions remains uncertain, particularly given the escalating geopolitical instability. While Russia’s two major metal producers, Rusal and Nornickel, have prepared for potential sanctions, their diminished access to Western financial systems will undoubtedly affect their operations.

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Image generated using artificial intelligence via Midourney.

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