LME bans new Russian metal, but prepares for flood of old stock

(Bloomberg) - The London Metal Exchange banned delivery of new Russian metal after U.S. and U.K. sanctions, but left the door open for a wave of used goods to flow into the market, raising the risk of pricing chaos.

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From April 13, no metal produced in Russia will be eligible for delivery on the LME, which plays a central role in the global metals community as the location for benchmark prices for metals ranging from aluminum to zinc. Russian metal produced before Saturday will still be accepted, as long as the delivering party can prove to the satisfaction of the LME that the metal is not affected by the sanctions.

The LME's response, which means it is in strict compliance with restrictions imposed by the US and UK, is likely to reignite a debate that has plagued the exchange since the Russian invasion of Ukraine. Some metal traders and producers have argued that the exchange should ban all Russian raw materials to avoid being swamped by a flood of unwanted metals, which they say depress prices and reduce its usefulness as a global benchmark.

LME chief executive Matthew Chamberlain said in a notice to members on Saturday that the exchange recognized the uncertainty that sanctions could create, leading traders to sell off old Russian stock on the LME "as a safeguard".

Therefore, he said, "there may be a relatively large amount" of Russian metal delivered to the exchange.

The LME acknowledges that a significant proportion of its part metal is backed by Russian metal (91% of aluminum on the LME is from Russia), but says that there were still deliveries of Russian aluminum from LME warehouses in January, February, and March, suggesting that "a sufficiently large proportion of the market is still willing to take delivery of Russian aluminum."

The LME considered banning deliveries of Russian supplies in 2022, but ultimately decided not to do so on the grounds that there were still enough buyers willing to accept deliveries of the metal. Although the UK imposed some restrictions on UK physical trading of Russian metal in December, this included an exemption to allow continued trading on the LME.

The exchange said that it would try applications for delivery of metals produced before April 13 on a case-by-case basis, and that British members wishing to remove old stocks would also need to notify the Department of Commerce and Trade.

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