Recently, a new round of trade sanctions imposed by the U.S. and British governments on Russian products has led to sharp fluctuations in prices at the London Metals Exchange (LME), in the two key metal sectors, aluminum and copper.

On April 15, 2024, the LME recorded three-month aluminum futures price opening was 9% higher than the previous weekend (April 12) to $2,728 per ton, the highest price since June 2022. Uranium and copper prices also rose by 9% and 2% respectively. Though this sharp price rise slowed down shortly after the opening, the ongoing upward trend has attracted widespread attention from the market.

The direct motivation for this price fluctuation was the U.S. and UK’s announcement on April 12 to ban the trading of Russian-produced non-ferrous metals such as aluminum, copper and uranium on LME and the U.S. Chicago Commodities Exchange (CME).

Russia is one of the worlds major producers of non-ferrous metals, with its aluminum production accounting for about 5% of the worlds production. Since the invasion of Ukraine in February 2022, Western countries have been reducing the procurement of Russian metal products. Despite the weak presence of Russian products in the international market, its inventories of non-ferrous metals held at LME have accounted for a large proportion, leading to market fluctuations.

In addition, the difference between LME’s color metal futures market and other commodity futures markets is that it allows for a certain amount of cash delivery. Therefore, LME has a large amount of cash storage in designated warehouses in about 30 regions of the world. With the imposition of tighter sanctions on Russia in Europe and the United States, although not all consumers reject Russian products, but difficult to trade Russian products have flowed into these designated warehouses, and by March 2024, the registered warehouses of aluminum produced in Russia have expanded to 90% of the total inventory.

The surge in prices on April 15 was partly due to the urge of investors holding empty positions to buy back cash to stock. This concern about falling inventories could be an important factor in driving short-term price increases. Chief economist Ben Longang, of Zhiwei Business Global Research, said the impact could be mitigated if more non-Russian metals flow into the LME inventory, but the market prospects are still unclear at the moment.

Market analyst Jiang Qingxi pointed out that although regulatory measures in Europe and the United States have forced Russian-produced non-ferrous metals to flow to one of the largest consumer countries, China, this has little impact on the actual global demand. However, since the pricing of non-ferrous metals is generally based on the LME market conditions, sharp fluctuations in market conditions will directly affect the transaction prices of enterprises and may affect performance.

At present, global demand for aluminum is growing, especially with the popularity of pure electric vehicles (EVs), the world is expected to face an supply shortage of 38.5 million tons in 2024.In the context of this supply-demand tension, any factor that may cause supply concern will be highly concerned by the market.Therefore, future market dynamics will continue to be influenced by international political and economic developments.