LONDON, April 15 (Reuters) - The London Metal Exchange (LME) has suspended the warranting of Russian metal produced on or after April 13 to comply with the latest sanctions packages announced on Friday by the U.S. and British governments.

Aluminium, copper and nickel spiked higher in early Monday trading, reflecting the importance of Russian supply to all three markets.

However, the sanctions have been carefully designed to minimise market turbulence.

The April 13 cut-off point means that Russian metal already in the LME system can continue to be traded, which is particularly significant for aluminium since Russian brands accounted for over 90% of warranted stocks at the end of March.

Rather, the ban on new metal deliveries to the LME and its U.S. counterpart the CME is likely to split the market for Russian metal with the exchange basis price moving to a premium over what is now non-exchange deliverable metal.


Russian brands of aluminium have accounted for over 90% of LME warranted stocks since the end of December.

Although many Western metal users have opted to self-sanction by refusing to use Russian metal, it is clear there is still an active global market for aluminium produced by Russian producer Rusal.

Russian metal comprised 58% of all the aluminium delivered out of LME warehouses in January, the ratio rising to 94% in February and 88% in March, according to the LME.

The amount of Russia copper and nickel in the LME system at the end of March was lower at 62% and 37% respectively.

Copper market dynamics are much tighter than those of aluminium. Exchange inventory is lower and China, the world's largest buyer, seems quite happy to take in Russian metal. Imports of Russian copper rose by 14% to 371,000 metric tons in 2023.

Nickel is globally over-supplied but the market for the Class I metal produced by Russia's Norilsk Nickel and traded on the LME has been much tighter than that for Class II forms of the metal such as ferronickel and nickel pig iron. As with copper, exchange inventory is lower and characterised by active two-way movement.

While the U.S. and UK governments have banned all imports of Russian aluminium, copper and nickel, the latest sanctions still allow for physical market trading in other regions and, in the case of metal produced before April 13, exchange trading and physical delivery, albeit with restrictions on citizens of both countries.


That raises the possibility of large deliveries of Russian metal onto LME warrant as holders of off-market material produced prior to April 13 play it safe and opt to deliver that metal to exchange.

"It is possible that a relatively large supply of Relevant Metal may be warranted (...) as a safeguarding move," the LME said in a notice to members.

Off-market stocks of aluminium, defined by the LME as metal that is being stored under a warehousing contract with an explicit option of warranting, stood at 734,000 tons at the end of February.

The amount of Russian metal in that shadow stock is unknown. But given that Russian metal is still being delivered regularly out of LME warehouses for physical delivery to the supply chain, "the LME expects that a sufficiently broad set of market participants will be able to use" such metal, the LME said.

Indeed, the design of the new sanctions package may actually benefit the LME, which has resisted calls unilaterally to ban Russian metal from its system.

Proponents of such a move have argued that allowing Russian metal to trade freely on the exchange risks debasing the LME price, which will end up reflecting metal that is the least wanted by the physical supply chain.

The LME's concern has been that simply removing all Russian metal as deliverable metal could create a liquidity crisis for the LME aluminium contract.

Such fears have been assuaged by allowing metal produced prior to April 13 to remain part of the LME's physical liquidity base.

Moreover, by creating a new pool of non-deliverable Russian metal, the logical outcome is for newly-produced metal to trade at a discount to the LME price, effectively bolstering the validity of the exchange basis price.

Thus, the sanctions can act to depress Russian metal producers' revenue from new production whilst avoiding a delivery default by LME short position holders unable to deliver older Russian metal against their positions.


All three affected metals jumped higher in early Monday trading. LME three-month aluminium spiked to a near two-year high of $2,728 per ton. Copper, which was already in full bull rally mode, extended its gains to $9,640.50, the highest price since June 2022. Nickel made it as far as $19,355, a level last traded in October 2023.

In all three cases the initial knee-jerk reaction has swiftly gone into reverse as the market ponders the potential for a period of rapid stocks rises as older Russian metal moves out of the storage shadows into LME warehouses.

There may be more surprises ahead as trade flows adapt to the new normal but for the LME the new sanctions bring some welcome clarity to an issue that had polarised the exchange's user base.

The opinions expressed here are those of the author, a columnist for Reuters

(Editing by David Evans)