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New sanctions on Russian metals will have limited effect on producers, analysts say

Finam Strategy Director Yaroslav Kabakov believes that Russian companies, given the restrictions, will look for new markets for their products

MOSCOW, April 15. /TASS/. New US and UK sanctions on the import of aluminum, nickel and copper from Russia will have a limited effect on Russian producers, while the main trade in these metals will move to the exchange in Shanghai, analysts say.

"The consequences are limited. The largest consumer of nickel, copper and aluminum from Russia is China. The country accounts for more than 50% of all Russian imports of these metals, they are traded on the Shanghai Futures Exchange. Moreover, the UK has already banned the import of these metals in December 2023, and the United States introduced protective duties on Russian aluminum (200%), nickel and copper (70%) in the spring of 2023," BCS analysts note.

As chief strategist of the investment company Vector X, Maxim Khudalov, told TASS that Russian metals have not recently passed through the London Metal Exchange (LME), since the exchange last year called their supply undesirable, and transactions through the Chicago Mercantile Exchange were kept to a minimum.

"Now London is actually transferring the palm of victory in market trade to Shanghai, since most of the world’s copper trading volumes are already there. Now both aluminum and nickel will go there," he noted. In general, Russian metal went to Asia and will continue to go to traders, the analyst said.

In turn, Finam Strategy Director Yaroslav Kabakov believes that Russian companies, given the restrictions, will look for new markets for their products.

"China could become one such market given its significant raw material requirements and willingness to work with Russian suppliers. Increased trading volumes on the Shanghai Exchange are therefore a realistic scenario as both importers and exporters look for alternative trading platforms," he told TASS.

About prices for metals

Finam's chief strategy officer believes that restrictions on imports and trade will most likely lead to higher prices for metals on world markets due to reduced supply from Russia.

Khudalov also noted that the imposed restrictions will have a positive effect on the growth of metal prices.

"Metal prices have already increased by 7-9%. Of course, such growth will be corrected, but metals will still increase in price by 5%," he believes.

"In general, we can expect increased volatility in the non-ferrous metals market in the near future, as well as a strengthening of the position of Asian markets, especially the Shanghai Exchange," Kabakov added.

About metal discounts

BCS analysts believe that the risk of a discount in the price of Russian metals in the current situation is limited.

"With a discount of 1%, Norilsk Nickel’s profit will fall by $60 million, and Rusal’s profit will plummet by $80 million, but rising prices can compensate for the drop in profit," they believe.

Khudalov also clarified that Russian producers of non-ferrous metals are unlikely to feel the serious impact of the restrictions. "There are risks of increasing discounts on Russian metal, but given rising prices, Russian suppliers are unlikely to feel the effect of sanctions on themselves," the analyst says.

The BCS analysts also note that the new sanctions do not limit the import of goods containing nickel, copper and aluminum from Russia.

On April 12, the UK and US extended sanctions against Russia in trade of metals, banning the London Metal Exchange and the Chicago Mercantile Exchange from replenishing their warehouses with aluminum, copper and nickel using supplies from Russia. In a joint statement, London and Washington noted that the new restrictions do not apply to the existing reserves of Russian metals in the warehouses of both exchanges and they are still allowed to carry out trading operations with them. However, both sites will no longer be able to purchase Russian copper, aluminum and nickel.

Last December, the UK completely banned the import of copper, aluminum and nickel coming from Russia. In the United States, a similar ban is starting to take effect now, but does not apply to metals mined before April 13, 2024.