Copper price: Chile, Codelco face another lost decade of output growth Frik Els | September 2, 2022 https://www.mining.com/copper-price-chile-codelco-face-another-lost-decade-of-output-growth/ Tunnel vision. Chuquicamata mine, Chile. Credit: Codelco. After an early jobs-report bump on Friday in New York, the copper market turned negative by lunchtime, marking its sixth straight session of losses. December contracts for the orange metal are now trading down 8% for the week. The carnage was evident among copper stocks, with the top producers suffering double digit losses over the last week of trading: Freeport-McMoRan gave up 12%, Southern Copper declined 11%, First Quantum Minerals fell by 18%, Antofagasta lost 11%, Teck Resources –10%, Glencore –12% while KGHM has lost 18% on the Warsaw exchange. Disappointing manufacturing data in China was behind the recent pullback after PMIs from the country, responsible for 55% of global copper consumption, unexpectedly slipped into contractionary territory. But worries about global growth, inflation and interest rates, and an energy crisis in Europe have been hounding the metal for months. The copper price has now fallen by one third since hitting all-time highs early in March above $5 per pound. No fun in fundamentals Amid all the economic gloom and doom, a bombshell announcement this week by the world’s number one copper producer appears to have gone largely unnoticed or ignored by large-scale speculators on futures markets who’ve been net short on copper for the last seven weeks. Chile’s state-owned Codelco last week said it expects output to reach between 1.49 million and 1.51 million tonnes this year, down from a previous forecast of 1.61 million tonnes. On Wednesday, Codelco chairman Maximo Pacheco told a newspaper 2023 guidance is 1.45m tonnes, but significantly, there is no prospect of an improvement. “For the five-year period between 2023 and 2027, the best forecast we have is 1.5 million tonnes on average. “Structural projects [to maintain output levels] are effectively behind schedule and over budget.” The “best forecast” would constitute the lowest output in at least a decade and compares to average attributable output of 1.74m since 2010 according to data from sister company Miningintelligence. Codelco’s output next year, would more than 400,000 tonnes below its 2015 peak. A 400ktpa mine would be the world’s fifth largest according to 2021 production tables. Two lost decades Codelco’s struggles are Chile’s struggles: water scarcity, declining grades, depletion rates, skinny project pipelines, industrial action, taxation increases and regulatory uncertainty and ever-expanding capex budgets. In 2021 Chile produced a quarter of the world’s primary copper output of 21m tonnes, according to the US Geological Survey. On a proportional basis that makes Chile’s position in the world of copper on par not with Saudi Arabia’s in crude oil, but the combined output of the 13 members of Opec. Source: BMO Global Commodities Research – Chile’s Perennial Copper Production Problems In a recent report, BMO Capital Markets says Chile is now heading towards two “lost decades” in terms of copper output growth: “Following the steady ramp-up in the 1990s and early 2000s, output levels have stagnated, with the projections of 6Mtpa-plus of output never coming to pass. “And this is not for a lack of investment, with a number of large new mines coming to market over this period. Rather, it is a function of decline at existing assets.” BMO notes that in particular, SX-EW production in Chile “continues to trend inexorably lower” and is now roughly 500,000 tonnes below peak levels seen in 2009.
We need ‘+330 mines in 12 years’ to feed battery demand. 1 hour ago | Reuben Adams https://stockhead.com.au/resources/...nickel-and-cobalt-stocks-can-answer-the-call/ At least 384 new graphite, lithium, nickel, and cobalt mines are needed in the next 12 years, Benchmark predicts 97, 56,000tpa natural flake graphite mines will need to be built 74 new lithium mines with an average size of 45,000 tonnes LCE by 2035 72 nickel mining projects with an average size of 42,500 tonnes, and 62 new cobalt mining projects of 5,000 tonnes each We need over 300 new mines to feed a 500% increase in battery demand by 2035, Benchmark Mineral Intelligence predicts. At least 384 new graphite, lithium, nickel, and cobalt mines are needed in the next 12 years, which drops to an almost-as-unwieldy 336 if recycling of raw materials is factored in. A very tough ask, for several reasons. One – the chance of finding an economic mineral deposit in the first place is frightfully small. There are many thousands of listed and unlisted exploration companies globally, and yet probably only 25 bona fide discoveries are made per year, famous resources sector investor Rick Rule says. “Only one in 3000 mineralised anomalies becomes a mine,” he says. Two – it takes a long time to build a mine from scratch. Minrex Consulting managing director Richard Schodde estimated an average delay between discovery and development of 12.4 years, based on data for 4676 significant non-bulk mineral discoveries made in the world since 1950. That lead time is getting worse, he says. “Depending on the commodity, only 50-70% (by number) and 60-80% (by contained metal) of discoveries turn into mines, and the average delay period has blown out to ~20 years,” Schodde said in 2017. “In other words, it is getting progressively harder and slower to turn a discovery into a mine. “This has profound implications on the industry’s long-term ability to supply new metal to customers.” There are many more reasons why that ‘+300-mines in 12 years’ target looks unlikely – like NIMBYism and jurisdictional risk — which puts those juniors with established resources and a clear plan to enter production in the next eight years in a very strong position. “The data highlights the height of the raw material challenge facing global automakers as they look to scale up production of electric vehicles this decade,” Benchmark says. “Demand for lithium-ion batteries is set to grow six-fold by 2032. Yet supplies of lithium, graphite, nickel, and cobalt will need to keep pace with demand, especially post 2030. “While recycling of raw materials will have the most impact on future cobalt supply, it’s not yet set to have much impact on materials such as graphite.” Today we look at a bunch of advanced ASX graphite, lithium, cobalt, and nickel project developers — plus a couple of recycling projects — which are first in line to feed Benchmark’s predicted shortfall. Don’t be mad if your favourite stock is missing, just let us know. Nicely. We love you all. Pic: Via Benchmark Mineral Intelligence........
Tycoon, who runs a quarter of China’s copper trade, is on the ropes By Alfred Cang and Jack Farchy 18 September 2022 https://www.bloomberg.com/news/arti...opper-trade-is-on-the-ropes?srnd=premium-asia (Bloomberg) – From the very beginning, guarding trains full of metal from thieves on freezing winter nights, He Jinbi built a copper trading house so powerful it can handle one in every four tons imported into China. A born trader with an infectious sense of humor, 57-year-old Maike Metals International Ltd. an important link between China’s industrial heartlands and global traders from Glencore Plc during the rough rush for commodities in the early 2000s. Now Maike is suffering from a liquidity crisis and He’s empire is in danger. The impact has been felt around the world: the company handles a million tonnes a year – a quarter of China’s refined copper imports – making it the largest player on the metal’s main global trade route and a major trader at the London Metals Exchange . With his wide network of contacts providing enviable insight into China’s factories and construction sites, he was a poster child for China’s resource-driven boom for over two decades – making fortunes from his insatiable demand for commodities and then plunging it into the red. hot real estate market. But this year, Beijing’s restrictive Covid-Zero policy has hit both the housing market and copper prices hard. After months of rumors, He publicly admitted last month that Maike had asked for help solving liquidity issues. He said the problems are temporary and affecting only a small part of his business, but his trading partners and creditors are cautious. Some Chinese domestic traders have suspended new business, while one of the company’s oldest lenders, ICBC Standard Bank Plc, was worried enough that it was pulling some of the copper from China that had backed its lending to Maike. Even if it can enlist the support of the government and state-owned banks, industry leaders say Maike could struggle to maintain its dominant role in China’s copper market. As much as He’s rise was a microcosm of China’s economic boom, his current woes may mark a turning point for commodity markets: the end of an era when Chinese demand could only rise. “In a way, May’s story is the story of modern China,” said David Lilley, who began dealing with May in the 1990s, first as a trader at MG Plc and later as a co-founder of trading house and hedge fund Red Kite. “He has mastered the dynamics of the Chinese economy, but no one was prepared for the Covid lockdowns.” This account of He’s rise to the top of China’s extractive industry is based on interviews with business partners, rivals and bankers, many of whom asked not to be named because of the delicate situation. A spokesperson for Maike declined to comment on the story, but responded to earlier questions from Bloomberg on September 7: “Our company has been deeply involved in the development of the resource industry for almost 30 years. It had maintained a steady development as witnessed by all. It will resume normal operations soon and continue to contribute to the development of industry and the local economy.” copper boom Born in China’s Shaanxi province in 1964, he was first introduced to copper when he got a job sourcing industrial materials for a local company. As a young man, he was paid to guard copper loads on trains criss-crossing China—which could be a cold job on a freezing winter night. In 1993, he and several friends founded Maike in the western city of Xi’an, known as the capital of China’s first emperor and site of the famous Terracotta Army statues. The group took out a loan of 50,000 yuan (about US$7,200) to buy and sell mechanical and electrical products. But He’s early exposure to copper had had an impact, and they quickly shifted their focus to scrap metal, copper wire and refined copper. With a personable personality, a big grin and a light-hearted sense of humor, he was a natural commodity trader whose charisma helped him build a wide network of friends and business contacts. As China’s economy liberalized, he used his connections to make Maike an intermediary between major international traders and China’s growing band of copper consumers. Within 15 years, China would go from one-tenth of the world’s copper supply to 50%, triggering a super-cycle of skyrocketing prices for the metal, used in electrical wires from power cords to air conditioners. Were Casino This was a wild era when China’s commodity markets were little more than a casino for many. Groups of traders banded together to bet together and launched ambushes on their opponents on the other side of the market. The bravest players would be named after the martial arts masters of popular novels. While many traders came and went during those go-go years, He persevered. “We did a lot of business together for over twenty years,” Lilley said. “There was a time when the Chinese metal trade was a real Wild West and it was characterized by its honesty. He would always keep his word.” He also had another quality essential to a successful commodity trader: risk-taking. In May 2005, the Chinese metal industry met in Shanghai for the annual Shanghai Futures Exchange conference. Copper prices had risen sharply, and most of the producers, processors, and traders in the audience thought they were about to fall. Even China’s powerful State Reserve Bureau had placed bearish bets. They were shocked when Barclays analyst Ingrid Sternby predicted copper would hit new highs as Chinese demand outstripped supply. But she was soon proved right, as prices more than doubled over the next 12 months. The SRB’s losses became a national scandal and most Chinese traders missed an opportunity to capitalize on the gains. He wasn’t among them. Paying close attention to demand from his network of Chinese consumers, he established a bullish position and benefited well from global price appreciation. It was a pattern he would successfully repeat many times over the years. His preferred strategy was to sell options – on the other side at a price that his Chinese clients were likely to see as a buying opportunity and on the other side at a price that they were likely to consider too expensive. While he enjoyed some of the traits of success, people who have known him for many years say he has remained down to earth even as his fortune swelled to levels that likely made him a dollar billionaire at his peak. In Shanghai, he regularly ate at a restaurant serving Xi’an cuisine, where he ate his favorite steamed cold noodles and fried leek dumplings for 50 yuan (US$7). financial flows The development of He’s business reflected the changes that were taking place in the Chinese business world. Although he started simply as a distributor of physical copper, he soon pioneered the growing links between the commodity business and the financial markets in China. As Maike rose to become the country’s leading copper importer, He began using the constant flow of metal to raise finance. He could demand upfront payments from his end customers and also borrow for the ever-increasing amounts of copper he shipped and stored in warehouses. Over the years, the link between copper and cash became established, and the ups and downs of the Chinese credit cycle became a major driver of the global market. He would use the money from his copper business to speculate on the stock market or increasingly invest in China’s booming real estate sector. From around 2011, He built hotels and business centers and even his own warehouses in Shanghai’s Bonded Zone. “In a way, Maike’s story is the story of modern China” As the state became an increasingly dominant force in China’s business community, it focused on investments in its hometown of Xi’an and supported projects under Xi Jinping’s Belt and Road Initiative. In that year, however, He’s empire began to shake. The city of Xi’an faced a month-long lockdown in December and January and further restrictions in April and July as Covid resurfaced, hurting He’s real estate investments. His hotels sat almost empty for months, and some commercial tenants simply stopped paying rent. Maike was one of several companies that tumbled their fortunes into the real estate market during the boom years, said Dong Hao, head of the Chaos Ternary Research Institute. “After the sharp turnaround in the real estate sector over the past year, such companies have encountered various difficulties,” he said. nickel squeeze The general malaise of the Chinese economy also caused the copper price to collapse, while Maike suffered from the banks’ increasing reluctance towards the raw materials sector in China. Confidence in the industry was hurt by the historic nickel squeeze in March, as well as several aluminum and copper ore shortage scandals. In recent weeks Maike has struggled to pay for his copper purchases and several international companies – including BHP Group and Chilean company Codelco – have stopped selling to Maike and diverted cargo. The future is uncertain. He met a group of Chinese banks at a crunch meeting organized by the Shaanxi local government in late August. Maike later said the banks had agreed to support them, including by offering extensions on existing loans. But its trading activities have largely ground to a halt as other traders become increasingly nervous about doing business with the company. And in the wake of May’s woes, some of the industry’s biggest banks are pulling out of metals financing in China altogether. In China, He’s ailments evoke mixed feelings. Many mourn his situation as tragic for China’s extractive industry and emblematic of an economy increasingly dominated by state-owned companies. Others would be less saddened by the end of a business model that turned copper into a financial asset and sometimes caused import margins to deviate from physical fundamentals. “For many years, traders like Maike have been very important in importing copper into China – they’ve been buying very consistently to keep the funding flowing,” said Simon Collins, the former head of metals trading at Trafigura Group and the CEO of digital trading platform TradeCloud. “With the real estate market the way it is, I think the music might stop.” ©2022 Bloomberg LP
LME copper stocks plunge again as metal heads to China Reuters | October 19, 2022 https://www.mining.com/web/column-lme-copper-stocks-plunge-again-as-metal-heads-to-china/ Image courtesy of Codelco (The opinions expressed here are those of the author, Andy Home, a columnist for Reuters.) The amount of available copper in the London Metal Exchange’s (LME) warehouse network has halved over the last eight days. Headline stocks of 139,000 tonnes may look healthy enough but a string of daily cancellations means that 48% of that tonnage is now awaiting physical load-out, leaving just 72,950 of live stocks. The stocks grab looks strange, given the rapidly darkening outlook for demand as Europe heads into recession and US manufacturing growth brakes sharply. But the clue lies in China, where a squeeze on the Shanghai Futures Exchange (ShFE) has generated a scramble for metal. Shanghai squeeze The ShFE copper contract has been characterized by low inventory and rolling tightness for some time. But things have come to a head since the market reopened after the Golden Week holidays and in the run-up to the October contract’s expiry on Monday. Market open interest surged to 454,074 contracts at the end of last week, the highest level of participation since 2015, as the front part of the curve tightened. Deliveries against short positions have been accelerating. Total registered ShFE stocks more than doubled over the holiday period to 63,746 tonnes with on-warrant inventory jumping from 3,729 to 25,588 tonnes. More have arrived this week, and on-warrant stocks mushrooming to 70,547 tonnes as of Tuesday. Shanghai is now acting as a magnet for available copper units both in China and the rest of the world. Yangshan yanks the supply chain It’s clear the first point of call for Shanghai shorts has been the copper sitting in the city’s bonded warehouses. Shanghai’s international copper contract, traded via the International Energy Exchange (INE), is backed up by such stocks. Registered inventory plunged from 88,861 to 28,389 tonnes over the Golden Week holidays, by some margin the biggest change in INE stocks since the contract was launched at the start of 2021. Local data provider Shanghai Metal Market (SMM) assesses broader bonded stock levels, sometimes termed “social stock”. These too have plummeted to 30,100 tonnes from a March peak of 293,500 tonnes. As bonded stocks rapidly deplete to fill on-shore ShFE warehouses, physical premiums are in turn rising to attract more metal from the international market. The Yangshan copper premium, a useful proxy for China’s spot import demand, has soared to $147.50 per tonne over LME cash, its highest trading level since 2013. The high premium for Chinese delivery is now sucking in metal from the rest of the world, including LME warehouses in Asia, where all the cancellation activity has taken place over the last week or so. Disrupted supply? The scramble for Shanghai metal is surprising given China’s refined copper imports have been running at a fast pace in recent months. Net imports of 2.31 million tonnes in the first eight months of the year were up almost 10% in the same period of 2021. However, these inflows have bypassed both bonded and on-shore warehouses to refill a depleted domestic supply chain after an extended bout of destocking due to record high prices earlier this year. It is probable that the troubled trade house Maike Group is also somehow in the Shanghai copper cocktail right now. The company, which is actively selling assets to forestall a liquidity crunch, is a copper powerhouse, typically handling around a quarter of China’s import volumes every year. Its ongoing restructuring, which includes the liquidation of copper stock, is likely disrupting normal trade flows through the bonded warehouse system. London’s Russian dilemma China’s strong call on copper is being felt in London, where falling LME stocks have rekindled time-spread volatility. The benchmark cash-to-three-months spread has been in backwardation since the middle of September and the cash premium was valued at a hefty $60 per tonne at Tuesday’s close. The micro tightness continues to clash with the bearish macro picture, which has kept outright three-month copper under pressure close to its July low of $6,955 per tonne, last trading at $7,375. The micro-macro divergence looks set to accentuate as LME stocks are stripped for shipment to China. There’s an extra complication for the LME, which has launched a discussion paper on whether to suspend deliveries of Russian-brand metal. Over 60% of LME copper stocks at the end of September were Russian metal. It’s quite possible that the ratio is about to go up further as total stocks fall and what’s left is increasingly concentrated on the European ports of Hamburg and Rotterdam. Both are obvious shipping destinations for Russia’s two copper producers and they currently hold a combined 42,425 tonnes of live stocks, equivalent to 58% of the rapidly diminishing total. Neither location has been touched by the recent spate of cancellation activity, which has understandably played out at Asian locations within much faster reach of Shanghai shorts. While this week’s huge flows of aluminum into LME warehouses have inevitably turned the spotlight on Russian aluminum producer Rusal, copper stock movements may become a bigger problem sooner. (Editing by David Evans)
Embattled London Metal Exchange is headed into yet another fight Bloomberg News | October 24, 2022 https://www.mining.com/web/embattled-london-metal-exchange-is-headed-into-yet-another-fight/ The London Metal Exchange floor (Image: HM Treasury -Flickr) The London Metal Exchange has faced a firestorm of criticism this year, and it’s about to get even worse. The 145-year-old bourse is already taking heat from regulators and being sued by hedge funds and proprietary traders over its handling of a massive short squeeze in nickel in March. Now it’s lurching toward yet another clash — this time over whether to ban Russian supplies, in a debate that is polarizing the metals world. A survey of traders in the aluminum market carried out by Bloomberg suggests that the sector is split. While many consumers are averse to taking Russian metal, some buyers of specialized Russian products can hardly escape using it. Top US producer Alcoa Corp. has implored the LME to ban supplies from Russia, while its Russian counterpart United Co. Rusal International PJSC has hinted it may sue if it does. The exchange formally opened a discussion earlier this month on how it should deal with Russian metal, and the debate is now coming to a head as the world’s metal miners, traders, financiers and manufacturers gather in London for the annual LME Week. “Any move by the LME would have far-reaching implications for the metals markets,” said ING metals strategist Ewa Manthey. “Without the ban, the LME risks losing its relevance as a benchmark for global metals trading. With the ban, global trade flows risk a disruption that could last for years to come.” The LME is considering taking action because of concerns that large amounts of unwanted Russian metal could be dumped into its warehouses as a last resort, distorting the world’s benchmark prices. The LME proposals — which include a potential ban on new deliveries of Russian metal as soon as next month — have already sparked extreme volatility, with prices jumping by an intraday record as Bloomberg first reported on the LME’s discussion paper last month. Adding to the powder-keg trading conditions, the White House is also weighing potential measures that could restrict the flow of aluminum into the US, or even result in sanctions on Rusal, the largest supplier outside China. Dividing the market While market participants have until Friday to submit their responses to the LME, interviews with metal producers, traders and consumers show that the subject is already dividing the market. Bloomberg polled a dozen traders in the global physical aluminum market, including at several of the largest players in the business. The poll revealed that a significant proportion of buyers are unwilling to take Russian metal, not only in Europe but also in the US and Asia. But it also showed that there are also still many who are willing to buy, particularly if the price is right and financing is available. The deteriorating economic outlook is also muddying the debate, as many manufacturers look to cut purchases of metals of all origins. And as it solicits views across the market, the LME has indicated that it is particularly interested in the stance of consumers of metal. Some traders say that a large majority of their customers don’t want Russian supplies in discussions about contracts for 2023. Mark Hansen, chief executive of trading house Concord Resources Ltd., said that about 90% of the customers for the roughly one million tons of aluminum he sells are refusing to buy Russian metal. He cited reasons including “lack of financial institution support for the Rusal brand in commercial transactions, moral concerns over the Russia-Ukraine war, anticipation that the LME will delist Russian metals, and the likelihood that governmental sanctions on Rusal from the USA, EU and UK are imminent.” Another large aluminum trader, who asked not to be identified discussing private information, said that between 65% and 85% of their customers globally were refusing to buy Russian metal under new contracts. Nuanced picture But others offered a more nuanced picture, stressing extreme variations between sectors and regions. In the markets for some of Rusal’s more specialized products — which are widely used in critical industries including aerospace and defense — self-sanctioning was said to be less widespread, due to a lack of alternative suppliers. In Japan, some larger traders have been refusing to take Russian aluminum in upcoming quarterly contracts, according to two of the respondents. Another trader said he expected about 30% of clients in Asia would be happy to take it if prices were favorable, but several said financing such transactions is proving difficult due to even stricter self-sanctioning by banks. So far, Rusal — Russia’s giant aluminum producer — has received indications from customers that they will buy metal amounting to 76% of its planned production for next year, providing the company isn’t hit with sanctions, a person familiar with the matter said. While some customers have signaled that they won’t sign new contracts in 2023, that has been largely offset by rising sales to other customers, including new customers in Europe. The sales volumes under negotiation are down about 12% to 13% on levels seen at the same point in last year’s mating season, but this is partly reflects a broader economic slowdown. Russia’s MMC Norilsk Nickel PJSC is bracing for a double-digit percentage drop in sales into Europe, and is preparing to reroute more metal to Asia, according to a person familiar with the matter. In aluminum, notable exceptions to the self-sanctioning trend include buyers of Rusal’s specialist value-added products, such as Constellium SE — which said earlier this year it buys about 4% of its metal from Russia. Constellium declined to comment. Glencore Plc, which renewed a long-term supply deal with Rusal in 2020 that was worth $16 billion at the time, is also expected to buy huge volumes of Rusal’s commodity-grade metal under the contract next year. Yet, in an indication of how the issue is dividing the industry, US aluminum producer Century Aluminum Co., in which Glencore owns a 43% stake, has — like Alcoa — been lobbying for the US to impose sanctions on Russian aluminum, according to people familiar with the matter. While the debate in the market simmers on, traders have been watching as large volumes of aluminum flowed into the LME system in the past week — followed by two days of big orders to withdraw metal. However, much of the increase was not of Russian origin, according to people familiar with the matter, meaning that for now it’s unlikely to impact the debate. Given the lack of unanimity in the market, it seems inevitable that the LME will anger some market participants, no matter what it chooses to do. Two traders with a large footprint in the global aluminum market said they’d support a less-drastic solution that would set limits on Russian inflows while still leaving the door open for consumers to buy it in times of tight supply. Still, the idea of a middle way, which was floated by the LME in its discussion paper, also has detractors, who argue that it would be hard to implement successfully and leave the rules open to being gamed by canny traders. One senior trader who was surveyed by Bloomberg said that any such restrictions risked doing more harm than good. (With assistance from Archie Hunter)
%% Copper is in a good uptrend/ from 1930's about $00.10 per pound. Boy plunger Livermore bought Anaconda Copper, founded in 1880.The largest copper mine in the world. Pump + dump was legal @ that time
LME decides against ban on Russian metal Bloomberg News | November 11, 2022 https://www.mining.com/web/lme-decides-against-ban-on-russian-metal/ Credit: LME The London Metal Exchange decided against a ban on new deliveries of Russian metal, in a blow to big western aluminum producers and some traders who had lobbied the exchange to take action. The LME said that feedback from the metals industry showed that “a material portion of the market is still accepting — even relying on — Russian metal.” It said it did not condone Russia’s actions in Ukraine, but that “the LME should not seek to take or impose any moral judgments on the broader market.” The exchange launched a formal discussion a month ago in response to calls from Alcoa Corp. and other large suppliers for Russian metal to be excluded from the LME, as a growing number of users shunned it in their contracts. Metal prices have jumped in recent weeks as traders weighed the possibility of action by the LME, as well as the US government — which has been mulling options including sanctions or tariffs against Russian aluminum. The LME was closed when the announcement was published on Friday, but shares of US-listed aluminum producers dropped on the news. While the US and Europe have imposed sweeping sanctions on Russia in response to the invasion of Ukraine, the metals traded on the LME have largely avoided blanket restrictions. Some metal consumers have been “self sanctioning” and refusing to buy Russian metal, leading to fears that it could be dumped on the LME and distort prices on the exchange. Still, the exchange said the responses to its discussion paper did not provide sufficient evidence for that thesis. Russian miner United Co. Rusal International PJSC has insisted it has no plans to make large deliveries to the LME, while associations representing thousands of European companies warned last month that a ban, or any government-imposed sanctions or tariffs, were an “imminent and vital threat” to the European aluminum industry. Russian stocks in LME warehouses might increase in the coming months as slowing global growth hurts demand, but that wouldn’t necessarily indicate that the market was disorderly, the LME said Friday. However, it plans to increase transparency on the issue by publishing a monthly report showing what percentage of the metal on warrant in its warehouses is of Russian origin, starting in January 2023. Alcoa, the biggest US producer, is “extremely disappointed in the LME’s decision to simply maintain the status quo,” a company spokesman said. “We continue to believe that there is a significant risk that unwanted Russian-origin metal will flood into the LME warehouse system, threatening the reliability of the LME aluminum contract.” While the majority of global metal is sold and used without ever being delivered to an LME warehouse, a potential ban could still have had far-reaching implications for the physical metals industry. Some contracts between producers, traders and consumers stipulate that the metal should be “LME deliverable,” and banks often insist on the condition for metal that they finance. Traders also rely on the fact that metal can be delivered to the LME when they use LME contracts to hedge their physical inventories. The LME’s decision puts it in line with other companies that have already said they will not take action on Russian metal ahead of any government sanctions, including rival exchange CME Group Inc., which has a much smaller aluminum contract, and Fastmarkets, which produces price assessments. Of the 42 written responses the LME received, less than a quarter were from metal consumers, with traders, banks and producers representing the largest groups. Of those who endorsed an option, 22 recommended taking no action, while 17 recommended banning Russian metal. The LME decision was announced at the end of a strong day for industrial metals — copper rose to the highest since June, while aluminum surged 5.9% in its biggest daily jump since 2009 as the dollar tumbled and after slower-than-expected US inflation data on Thursday raised the chances that the Federal Reserve will slow rate hikes. After the LME’s announcement, shares in Alcoa, the biggest US producer, pared an earlier 16% gain to trade 8.7% higher on the day, while Century Aluminum Co.’s traded 19% higher, after earlier surging as much as 29%. (By Jack Farchy, with assistance from David Marino and Joe Deaux)
The LME is owned by Stock Exchange of Hong Kong China, so no surprise at this outcome. This is what happens when you allow China to run the show.