LME to consider options to address Russian metal in warehouses

The London Metal Exchange released a discussion paper Oct. 6 to inform members that it would start examining the sentiment regarding the flow of Russia-origin metal in its warehouses in the wake expectations that market participants may increasingly reject these products as 2023 contract negotiations progress.

“Since Russia invaded Ukraine on Feb. 24, 2022, specific sectoral sanctions and related measures against Russia have been introduced; however, there has been no comprehensive government-led action to prevent the widespread use of Russian metal,” the LME said in the paper. “In parallel, the LME has been closely monitoring the usage and throughflow of Russian metal on the LME, to ensure that LME warehouses do not see a significant inflow of unwanted Russian stocks, posing a risk of creating a disorderly or unfair market.”

The LME said Russian metal inventories have been flowing through its warehouse throughout the year, indicating that consumers have been willing to take delivery of Russia-origin products, though the sentiment may change by the end of 2022.

“As the current negotiation period for 2023 supply agreements progresses, the LME understands that an increasing number of consumers may be expressing an unwillingness to accept Russian metal in 2023,” the LME said. “As a result, and in light of the potentially changing market landscape, the LME now considers it appropriate to gather further data and views.”

While many companies have opted to “self-sanction” by implementing their own policies regarding Russian-origin metal, the LME acknowledged that it has acted cautiously to reflect the interests of the broader market.

“For as long as Russian metal is acceptable to a broad spectrum of global consumers, then the interests of an orderly market are likely best to be served by the continued presence of Russian brands on the LME’s brand lists, as this will ensure that the LME’s warehouse stocks continue to reflect the global physical market,” the LME said.

Possible options

The LME said it will seek market feedback as it considers an “appropriate balance” to address the future of Russian metal in its warehouses.

“The metal market has been operating in a low stock environment for some time, adding further uncertainty,” the LME said. “Acting preemptively could cause further market distortion during an already difficult time but, on the other hand, a failure to take action now could mean that the LME’s hands are tied in the future, when any move to address the situation could be undermined by the volume of Russian metal already on warrant.”

Possible actions that the LME could enact include maintaining its current position, introducing volume thresholds for Russian metal inventories in LME warehouses, or suspending warranting for Russian metal in its global warehouses.

“The LME is keen to hear views on the topics in this discussion paper and also on the specific options laid out,” it said. “The LME would also welcome ideas not included in this paper.”

— Nick Lazzaro