SHANGHAI, Oct 17 (SMM) - It was reported that the London Metal Exchange (LME) would limit new deliveries of copper and zinc from Russia’s Ural Mining Metallurgical Company (UMMC) and one of its subsidiaries after Britain sanctioned UMMC co-founder Iskandar Makhmudov earlier. Currently, Russian metals such as nickel, copper, lead, primary aluminium and aluminium alloys have been banned from being stored in the LME's UK warehouses. Two weeks ago, the LME confirmed to the media that it was considering launching a discussion paper on whether to prevent new supplies of Russian metals from entering its warehouse network. Up to now, the LME's discussion on a ban on Russian aluminium metal has been inconclusive. Should the ban be implemented, how will it affect the aluminium market?
Russia is a major producer of copper, aluminium and nickel. Rusal’s annual aluminium capacity stands at approximately 4.5 million mt, accounting for roughly 6% of the global total and 13% of the capacity outside China. Rusal produced 3.6 million mt of aluminium in 2021.
According to Russian customs data, Russia exported approximately 2.94 million mt of primary aluminium in 2021. As a major exporter of primary aluminium, Russia exported primary aluminium to 59 countries and regions last year, with Europe and Asia being the major buyers.
In 2021, Russia’s primary aluminium exports to Europe (including Turkey) were about 1.58 million mt, accounting for 54.1% of its total exports, ranking first, followed by Asia (1.09 million mt or 37.2%), and North America (242,000 mt or 8.3%). Should the LME prohibit the delivery of Russian aluminium, the trade and circulation of Russian aluminium will be affected to some extent, triggering fears of a supply gap in overseas markets, especially in Europe. However, the LME data showed that the delivery volume of Russian aluminium to LME warehouses have kept falling in recent years. Buyers in some regions scrambled to purchase Russian aluminium on fears of its supply disruptions.
China imported 1.58 million mt of aluminium ingots last year, of which 291,000 mt or 18.42% came from Russia. China’s energy structure adjustment constrained the production of aluminium in 2021, leading to a surge in the import volume. In 2022, the aluminium production in China has gradually resumed, while the import window was closed. Imports from Russia were mostly under long-term contracts. According to customs data, the cumulative import volume of aluminium ingots amounted to 248,000 mt from January to July 2022, with 188,500 mt or 78% coming from Russia. While Russia has been an important aluminium ingot supplier to China, improving self-sufficiency rate and import losses arising from low SHFE/LME aluminium price ratio will prevent enormous amount of Russian aluminium from flooding into China. China’s imports of Russian aluminium are expected to be limited in the fourth quarter.
To sum up, the supply and transactions of Russian aluminium in the overseas market will be inevitably affected, if the LME imposes a ban. This will drive Russian aluminium suppliers to seek other markets alongside other options, such as price or output cuts. SMM will closely watch how the issue will evolve in the future.
