Base metal prices surge as new sanctions target Russian nickel, copper and aluminium

Global demand for a number of base metals including nickel, copper and aluminium has increased notably after the US and UK governments moved to further restrict trading of Russian metals.

The new restrictions were placed on Russian-produced metals in response to its war with Ukraine.

Under the new sanctions, no newly-produced Russian copper, aluminum or nickel can trade on the London Metal Exchange (LME) or Chicago Mercantile Exchange.

The moratorium applies to material produced on or after April 13 of this year.

Major metal producer

Russia is a leading global trader of all three metals, producing around 6% of the world’s nickel, 5% of the globe’s aluminium and 4% of its copper.

The sanctions aim to restrict revenues for Russia from the export of metal produced by companies such as Rusal and Nornickel that help to fund its military operations in Ukraine.

In announcing its decision to ban Russian metal in this way, the LME said it was complying with the new UK sanctions.

It said the sanctions reflect the intention of the UK Government to restrict the financial benefit which the Russian government may receive from metals produced in Russia that are traded globally.

The LME also noted the additional sanctions brought in via the US Department of Treasury’s Office of Foreign Assets Control (OFAC).

Two of the OFAC determinations introduced a ban on import into the US of covered Russian metals and a prohibition against US persons providing warranting services for covered Russian metals on a global metal exchange and services to acquire covered Russian metals as part of the physical settlement of a derivative contract.

Immediate impact

News of the sanctions had an immediate impact on the prices of the metals, with copper soaring to its highest level in 14 months, aluminum rising by as much as 9.4% and nickel up 8.8%.

Leading local commodity analyst Daniel Hynes noted in his daily ANZ Commodity Wrap that while spot prices for base metals have slid in recent days, longer-dated futures contracts tightened as traders reacted to the sanctions.

“The urgency to get their hands on metal now, as opposed to several months’ time when the sanctions are expected to tighten the market considerably, was high,” he wrote.

“Data from the LME showed a fresh request to remove 79,100 tonnes of aluminium from warehouses in South Korea.”

“UK rules on citizens trading Russian metal had seen inventories from the country build up in warehouses.”

More than 90% of LME aluminium inventories are estimated to be from Russia.

“Investors’ positioning data shows speculators have increased their bullish LME bets by 3,817 net long contracts to 135,986 tonnes.”

“The sanctions could trigger a surge of Chinese copper onto the market.”