LME, Comex ordered to restrict Russian metals trading

The U.S. Department of the Treasury, along with its counterpart the HM Treasury department in the United Kingdom, have announced restrictions on the trading of Russian aluminum, copper and nickel on the London Metal Exchange (LME) and the Comex exchange in the U.S.

The Treasury Department says the new prohibitions have been designed to "disrupt" the revenue Russia earns from its export of aluminum, copper and nickel.

The two executive orders prohibit the import of Russian-origin aluminum, copper and nickel into the U.S. and limits the use of Russian-origin aluminum, copper and nickel on global metal exchanges and in over-the-counter derivatives trading.

“This action solidifies Treasury’s follow through on the G7 leaders’ statement to reduce Russia’s revenues from metals," the department says.

In the U.S., executive order (EO) 14068 prohibits the imports from Russia, effective April 13.  The related EO 14071 prohibits the export, re-export, sale or supply to any person located in the Russian Federation of: 1) warranting services for those three metals produced on or after April 13 on a global metal exchange; and 2) services to acquire those metals produced on or after April 13 as part of the physical settlement of a derivatives contract.

"Our new prohibitions on key metals, in coordination with our partners in the United Kingdom, will continue to target the revenue Russia can earn to continue its brutal war against Ukraine," Secretary of the Treasury Janet Yellen says. "By taking this action in a targeted and responsible manner, we will reduce Russia’s earnings while protecting our partners and allies from unwanted spillover effects.”

The Treasury Department specifically lists the LME and Chicago Mercantile Exchange (CME, operator of the Comex exchange) as prohibited from accepting new aluminum, copper and nickel produced by Russia.

“Disabling [Vladimir] Putin’s capacity to wage his illegal war in Ukraine is better achieved when we act alongside our allies," U.K. Chancellor of the Exchequer Jeremy Hunt says. "Thanks to Britain’s leadership in this area, our decisive action with the U.S. to jointly ban Russian metals from the two largest exchanges will prevent the Kremlin funnelling more cash into its war machine.”

That would seem to provide leeway for Russian trading and warehousing activity in some parts of the LME warehouse network in the near-term future. There are more than 450 LME-approved storage facilities in 32 locations across the U.S., Europe and Asia, and the exchange does not own or operate the warehouses, but authorizes warehouse companies and the warehouses they operate to store LME-registered brands of metal, on behalf of warrant holders.

The LME says the production date of affected Russian metal (produced on or after April 13) will be tied in part to the certificate of analysis (CoA) that accompanies metal when it is warehoused or warranted.

Russian metals producers with branded products registered with the LME include aluminum alloys and primary aluminum maker Rusal and nickel producers Nornickel and Severonickel. Nornickel also has a primary copper product registered with the LME.

“Metal exchanges provide a central role in facilitating the trading of industrial metals around the globe," the U.S. Treasury Department says. "By taking joint action, the U.S. and the U.K. are depriving Russia and its metals producers of an important source of revenue.”

Veteran nonferrous metals trader Michael Lion, whose career has spanned Europe, Asia and North America (including a stint in the LME ring), says the announcement has the potential to cause an “immediate upward price impact” for the three metals in the near term.

Nonferrous scrap traders who hedge with the LME could be “caught up in [an] upward price rise influence of LME benchmark prices” Lion tells Recycling Today.

The LME is owned by the China-based Hong Kong Exchange (HKEX) organization, leading to a question as to whether that exchange might be less inclined to abide by U.S. or U.K. sanctions rigorously, as some other Chinese corporations have been accused of doing.

Lion, however, says the LME’s presence in London likely means it will adhere closely to the new sanctions. “I very much doubt that Russia can work around these multi-government-enforced, stringent new sanctions,” he says, adding that Hong Kong ownership of the LME probably is irrelevant, based on the LME’s obligation to adhere to U.K. and U.S. sanctions.

As Lion predicted, as LME trading opened in Asia and then Europe Monday morning the value of aluminum and nickel rose by from 8 to 9 percent. For aluminum, the opening price rise is the most since the current form of the contract was launched in 1987 at the LME.

Nickel, while also rising, would have to spike enormously to match the price volatility it experienced in March 2023. The LME copper price also rose Monday morning, but in a more modest 1 percent range since Russia’s presence in the global copper market is not as pronounced as it is for aluminum or nickel.

The Treasury Department announcement, which includes links to the two executive orders, can be found here, and the HM Treasury version of the announcement can be found here.