European market ban on Russian metal untenable, says London Metal Exchange

A major UK exchange has decided against banning Russian metal.

Who

The London Metal Exchange, after several weeks of deliberation, has published a paper outlining its reasoning for not banning Russian metal. The key points include the stipulation that the Exchange should refrain from making ethical judgements, the potential effects on participants in the market being too serious for the LME to make a unilateral decision, and current sanctions not covering the resources in question.

A quote from the paper: “It is for the metals community more broadly to form a consensus on whether Russian metals will be consistent with responsible sourcing norms (including, for example, the question of whether Russia will constitute a conflict-affected or high-risk area, or CAHRA). Given that the industry is far from having reached a view on this matter, it would be precipitate for the LME to take unilateral action on the topic under the responsible sourcing banner.”

The full paper is available here.

Why it matters

Our Metals and Technologies consultant, Leonid Khazanov, offered the following comment:

“The decision by LME management not to impose a ban on base metals supplies from Russia to its warehouses makes sense: had the LME decided to take this step, it would have caused serious problems for its consumers.

Of course, they would have quickly adapted to a stoppage of Russian aluminum deliveries to LME warehouses, since those are already vanishingly low. But in the case of copper and nickel, the situation would be much more serious, in Europe particularly.

The fact is that Europe's largest copper producers, Aurubis of Germany and Boliden of Sweden, would not be able to replace Russian products. The current prices for natural gas and electric power make it impossible for them to increase their copper output. Nor would purchasing from Chile's Codelco or metallurgical companies offer an overnight solution: none of them has the capability in terms of production and logistics to sharply increase sales of copper.

Only one plant in Europe produces nickel, and it is owned by a Russian company. Its production capacity would certainly be insufficient to meet the demand from European consumers and, besides, there are not many pure nickel producers in the world, with all of them operating very close to capacity.

As a result, the current crisis in European industry, caused by the high cost of energy, would have been exacerbated by the termination of imports of nonferrous metals from Russia and led to the shutdown of enterprises across various industries, ranging from cable to automobile manufacturers.”