The London Metal Exchange's (lme) ban on new Russian production of aluminium, copper and nickel is likely to push Chinese imports even higher. It also leaves the Shanghai Futures Exchange (shanghai futures exchange) as the only major global commodities exchange to accept Russian exports of the three metals.
"The liquidity of Russian metals in the European and U.S. markets is likely to fall further and global trade flows will be reshaped," said Wang Rong, a senior analyst at Shanghai-based brokerage Guotai Junan Futures Co.
Energy market sanctions imposed on Russia after its invasion of Ukraine have already had a huge impact on China's buying habits. Last year, Russia overtook Saudi Arabia as China's biggest source of crude imports. It is also now China's second-largest supplier of coal, and could become its biggest supplier of natural gas this year.
Even without formal sanctions, China's aluminium imports from Russia have reached record levels. Russian aluminium giant United Co. Rusal International PJSC got 23% of its revenue from China last year, compared with just 8% in 2022. Rusal has also acquired a 30% stake in a Chinese alumina plant to fill a supply gap for this key raw material during supply disruptions triggered by the war in Ukraine.
Guotai Junan said the new sanctions will drive more Russian metal exports to countries outside the jurisdiction of the U.S. and U.K., particularly China. The additional supply will also encourage exports of Chinese-produced metal as more of it flows into China, the broker said in a report. China is the world's largest producer of refined copper and refined aluminium, and is also a major player in the nickel industry through its investments in Indonesia.
Chinese importers have used Beijing's strategic alliance with Moscow to win discounts on key raw materials, paying in yuan and bypassing the trade currency, which is usually settled in dollars. This has helped China, the world's largest buyer of commodities, sidestep the inflationary impact of the war in Ukraine, while also fuelling Beijing's desire to topple the dollar's status as the world's reserve currency.
But more Russian exports are having problems of their own at a time when China's economy is so sluggish. Chinese metals traders struggled with weak demand last year, and the budding recovery in metals markets such as copper emerged relatively late.
The prospect of increased Russian supplies widened the spread between the metals in London and Shanghai in early Monday trading. Aluminium prices on the London Metal Exchange (LME) soared 9.4% at one point, while the Shanghai Futures Exchange (SHFE) reacted more modestly, capping gains at 2.9% compared with Friday's close.
China has long sought greater pricing power over global commodities because of its heavy reliance on imports. The new sanctions will allow old Russian metal to continue to be shipped to the London Metal Exchange (LME), the world's benchmark metal exchange, as well as the Chicago Mercantile Exchange, the main U.S. exchange.
