Do High Russian Aluminum Volumes Call the LME’s Integrity into Question?

(Editor’s Note: This article has been edited and updated since it’s earlier publication to reflect the LME position on Russian origin materials)

It’s no news that the London Metal Exchange (LME) has seen a big rise in Russian aluminum inventories in its warehouses. However, the surge in Russian metal remains a source of concern. After all, it could potentially affect aluminum prices on the exchange, which producers, consumers and traders often use as a benchmark for contracts.

Rusal, a Russian aluminum manufacturer, accounts for 5.4% of the world’s total aluminum supply. Many expect the company’s output to total around 70 million tons this year. However, its product accounts for a vast percentage of LME stores. Thus far, the LME seems hesitant to exclude Russian metals from being traded and stored within its warehouses. However, producers and other market participants remain vocal in their support for Russian metal sanctions.

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Global Prices of Aluminum Could See Impact

Russia currently produces more than half of the aluminum in LME warehouses, and the percentage of Russian aluminum inventories in LME warehouses has been growing since January 2023.

When the U.S. placed import taxes on Russian metal in late February, the influx of Russian metal into its U.S. registered warehouses halted. Due to the war in Ukraine, certain companies in Europe and parts of Asia do not want Russian aluminum. Alcoa Corporation recently requested that the LME act to delist Russian-origin products to maintain the exchange’s reputation and integrity. Alcoa’s Executive Vice President and Chief Commercial Officer, Kelly Thomas, said that along with the humanitarian crisis caused by Russia’s invasion of Ukraine, the presence of so much Russian stock could seriously threaten the global prices of aluminum.

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Examining the Potential Ramifications

So far this year, the amount of Russian aluminum in LME warehouses continues to increase. In March, the figure reached 53% after hitting 46% in February and 41% in January. April saw a brief decline to 52%. However, in May, the figure shot back up to 68%. Given the current state of affairs, many analysts expect this number to rise even further.

The global aluminum market continues to watch the proportion of Russian metal in LME-registered warehouses. Some consumers want to avoid Russian metal whenever possible, according to a recent article by Reuters.

However, according to a recent statement released by the LME, global consumers continue to purchase and accept Russian aluminum and other types of Russian metals. The LME goes on to state that they are continuing to review and provide access to this data so as to be transparent with global metal buyers.

The LME still holds its place as the global benchmarking source for aluminum and at this point, no other metal exchanges have replaced it.

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