What's happening at the London Metal Exchange: reduction of reserves and prohibition of Russian metals

Что происходит на Лондонской бирже металлов: сокращение запасов и запрет российских металлов

What's happening at the London Metal Exchange: reduction of reserves and prohibition of Russian metals

SeverstalCHMF1013.40 RKbuy

NLMKNLMK155.00 RKbuy

Magnitogorsk Iron and Steel WorksMAGN41.86 RKbuy


Norilsk NickelGMKN20 794,00 BuyService in partnership with Tinkoff Investments. Quotes are updated every 15 minutes

Inventories of the world's most important industrial metals have fallen to a critically low level, reports the Financial Times.

Inventories were already declining, поскольку в 2021 году промышленная активность оживилась, while global logistics and transport systems remained overwhelmed. Such metals, like aluminum and zinc, came under pressure in Europe, as soaring electricity prices have made some plants unprofitable, which led to their closure.

Aluminium volumes, copper, nickel and zinc, the four major futures contracts on the London Metal Exchange (LME) have decreased over the past year 70%. And most recently, the supply of Russian metal producers fell under sanctions.

Zinc problems

In recent weeks, the trend has been most pronounced in the zinc market., where are the prices 12 April rose by 2,8% and reached a 16-year high - almost 4400 $ per ton. Zinc is used as a protective coating for steel in construction, automotive industry and in the production of household appliances.

Since the beginning of April, available zinc stocks at the LME have fallen by almost 58% — до двухлетнего минимума в 45 thousand tons. Analysts believe, that the sharp rise in gas and electricity prices is to blame for everything. February to March Glencore, Trafigura, Norsk Hydro and other companies cut production at unprofitable zinc and aluminum smelters.

To make up for the production deficit, some of these companies take inventory from LME warehouses to fulfill contractual obligations to manufacturing customers.

Zinc inventory decline comes at a challenging time for the LME, which suspended nickel trading in March after, how, as a result of squeezing short positions, the price increased by more than 250%. Low inventories could fuel LME price spikes, as traders and producers seek to cover short positions by buying back contracts, and not by supplying a slab of metal from one of the warehouses of the exchange.

Sanctions against Russian metals

The decline in production is just one of the factors, causing tension in the metal markets. Fears, that the supply of copper and nickel from Russia may be disrupted due to sanctions, also pushed prices up. Here is a list of companies, who fell under the sanctions:

  1. Severstal - steel.
  2. NLMK - cast iron, steel.
  3. MMK - iron ore, cast iron, steel.
  4. Rusal - aluminum.
  5. Evraz - steel.
  6. Norilsk Nickel - Nickel, copper, platinum, palladium.

Besides, 1 April LME banned the placement of non-ferrous metals from Russia in its warehouses.

Goldman Sachs Expects, что в этом году предложение рафинированной меди будет отставать от спроса на 375 тысяч тонн — вдвое больше, than his previous estimate, - and will be large enough, to exhaust all visible reserves by December.

What can it all come to

Shortage of metals in warehouses and high prices could put serious pressure on European production. There is a possibility, that the European Union will lift sanctions on Russian metals - by analogy with the American lifting of sanctions against fertilizers.

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