New Sanctions and Immediate Market Reaction

The global metals market experienced significant volatility after the US and the UK announced new sanctions targeting Russian metals. Specifically, these measures prohibit the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME) from accepting new aluminum, copper, and nickel produced by Russia on or after April 13. Immediately, aluminum prices on the LME surged, at one point reaching $2,728 per ton, the highest level in 22 months. This sudden increase reflects market anxiety about supply, although the actual impact may be more complex.

Structural Impact on the LME and Price Disparity

The sanctions create a major structural challenge for the LME, where a staggering 91% of the aluminum inventory is of Russian origin. This means that LME prices will increasingly reflect the price of non-Russian metal, while a large volume of Russian aluminum will have to find its way to other markets, likely at a discount. This situation risks creating a two-tiered price system: an LME price for sanction-compliant metal and another, lower price for Russian metal traded outside Western exchanges. Products like aluminum sheets and coils from Russia will be directly affected by this differentiation.

China's Domestic Market and the Global Outlook

In contrast to the sharp price hike on the LME, the Shanghai Futures Exchange (SHFE) showed a more subdued reaction. The main reason is that China's domestic market is facing a supply surplus and slow demand recovery. Russian aluminum that cannot be traded on the LME is likely to be redirected to China, further increasing domestic supply pressure and limiting price gains. This widens the price gap between the LME and SHFE, creating opportunities for arbitrage trading.

In the long term, experts believe the sanctions will not completely remove the Russian aluminum supply from the global market but will only alter trade flows. The market will gradually adapt to the new structure. Industries that use specialized products like checkered plates or solid round bars will need to closely monitor price fluctuations between regions to develop effective procurement strategies.