New bans on Russian metals mean China will buy low and sell high to supply the U.S., Europe, and UK Last Friday at midnight, the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME) enacted the most comprehensive limitation on Russian exports to date: a ban on all Russian metal produced after April 12. The move was made to bring the LME into compliance with the latest U.S. and U.K. sanctions imposed following Russia's invasion of Ukraine.
The goal is to prevent Russia from being able to profit from the export of metal produced by companies such as Rusal (aluminum) and Nornickel (nickel) which help the country fund its ongoing military operations in Ukraine.
“Russian metal warrants issued on or after 13 April 2024 for metal produced before 13 April 2024 are still subject to restrictions that prevent U.K. LME Members and clients from canceling or withdrawing the corresponding metal unless they are doing so for the account of a non-UK Client,” the LME wrote in a statement.
For their part, the CME told Reuters that they “are reviewing and will communicate any impact to our markets. We do not disclose the origin or brands of the eligible or registered metal we have in store and that is consistent across all of our physically delivered markets.”
The new sanctions have already resulted in the exploitation of new loopholes and trades within the LME system based on the technical nature of the contracts and corporate relationships.
For starters, the new regulations do not ban bilateral contracts between two companies, but only those made through the LME. Russian metals traded this way are expected to be available at a discount, and the ruling out of the LME and CME as destinations means there will be plenty of supply for these kinds of deals.
But during the first trading day under the new rules, another scheme emerged. According to a Bloomberg report, traders are making deals with the LME-approved warehouses to profit off the massive stocks of Russian metal that will not be sold, making it “the latest episode in a rich history of traders seeking to exploit loopholes to profit from giant stocks of aluminum on the LME, which can generate hundreds of millions of dollars a year in storage and handling fees.”.....................
https://www.kitco.com/news/article/2024-04-19/new-bans-russian-metals-mean-china-will-buy-low-and-sell-high-supply-us
