Glencore acts to profit from LME post-sanction rule change

Aluminum rods. (Reference image by rualuminas, Pixabay.)

Mining and trading house Glencore aims to take thousands of metric tons of Russian aluminum from the London Metal Exchange (LME) and return it at a later date to profit from rule changes, three sources familiar with the matter said.

The LME has banned from its system Russian aluminum, copper and nickel produced from April 13 to comply with new US and UK sanctions imposed over Russia’s invasion of Ukraine.

For metal produced before April 13, the rules differentiate between Type 1 and Type 2 Russian warrants – title documents conferring ownership.

The distinction creates a trading opportunity for companies such as Glencore, which has a multi-year contract with Russia’s Rusal, the world’s largest aluminum producer outside China.

The contract expires in the second half of 2024. Detail of how much metal it covers has not been made public.

London-listed Glencore declined to comment.

Under the new rules, the Type 1 contracts allow UK LME members and their clients to freely trade Russian metal warrants in existence before April 13.

The Type 2 category covers Russian metal produced before April 13 but not yet on LME warrant, and which UK companies can only trade or take physical delivery of for non-UK clients.

That makes it more likely the metal will remain in the LME system, providing scope for what are known as “rent deals,” or agreements that allow LME warehouses to share their fees, or rental income, with companies that deliver metal to them.

Glencore plans to take the aluminum from the LME system and then re-warrant it later to turn it into Type 2 metal, the sources said, speaking on condition of anonymity because they were not authorized to speak to the press.

They said Glencore on Monday cancelled around 80,000 metric tons of Russian aluminum in LME-registered storage in Gwangyang, South Korea, meaning they were preparing take it out of the LME system.

The sources did not give further detail.

LME says monitoring closely

The LME said in emailed comment that the new UK and US sanctions have been implemented on its market in an orderly fashion but it continues to monitor the market closely.

It said it was ready to take further action should that be required, “including in relation to adverse market behaviours as a result of the introduction of the recent sanctions”.

Under rent deals, the company that delivers metal to a warehouse does not have to retain ownership, but can get a share of the rent, paid by the new owners, for as long as the metal stays in that warehouse.

Rent for storing aluminum in LME warehouses is around 55 US cents a ton a day or $44,000 for 80,000 tons.

Stocks of aluminum, used widely in power, construction and packaging, in Gwangyang on April 15 stood at 237,550 tons or 46% of the total 517,350 tons stored in LME warehouses around the world. The sources said most of the metal in Gwangyang was Glencore’s and was Russian.

The price of aluminum has retreated to around $2,550 a ton after jumping to a 22-month high of $2,728 a ton on Monday in a knee-jerk reaction to the news of the bans on exchanges accepting Russian metal.

(By Pratima Desai; Editing by Veronica Brown and Barbara Lewis)


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