Russia’s mining giants rush to sell metal after LME green light

Production facilities at a large factory in Russia in Izhevsk. Credit: Adobe Stock

The London Metal Exchange’s decision not to ban Russian metal from its warehouses has triggered a rush to conclude contracts with the country’s two big producers.

The LME’s discussion about whether to ban Russian metal had prompted some buyers to delay signing annual supply deals with MMC Norilsk Nickel PJSC and United Co. Rusal International PJSC. Now contracts with both companies are being finalized.

Sales have picked up since the LME’s decision, Rusal said. Contracts in North America are being settled, although sales will drop 4% to 5% because some customers are unwilling to buy Russian metal, said Brian Hesse, owner and chief executive officer of PerenniAL, the exclusive marketer of Rusal aluminum into the region.

Nornickel, the world’s No. 1 producer of refined nickel, has also seen a pick-up in its sales activity since the LME decision, a person familiar with situation said, asking not to be identified as the company doesn’t comment on contracting.

The LME last Friday announced it would continue allowing Russian metal to be delivered against its contracts in the absence of further sanctions by governments, disappointing some big producers who had lobbied in favor of action. They had argued that, with some consumers refusing to buy Russian metal, it could be dumped on the LME and distort prices on the exchange.

Big producers almost never sell their metal directly on the LME, and Rusal — Russia’s only aluminum producer — reiterated this week that it has “no intention to deliver metal to the exchange.” Still, the ability to deliver to the exchange is an important backstop in times of oversupply, and also makes metal easier to finance.

Nornickel expects to finish signing annual contracts by mid-December, the person familiar said. It expects sales for palladium and platinum — which are not traded on the LME — to be in line with its targets. However, it’s unlikely to reach its goals for nickel and copper, which are traded on the exchange — a possible sign of how the LME discussion has impacted the process.

Even before the LME discussions, Nornickel was considering redirecting some sales to the east if needed, Chief Executive Officer Vladimir Potanin said in a Russian TV interview in September.

On aluminum, to offset lower projected sales in North America, PerenniAL — Rusal’s former US sales unit that was bought out by its management this year — is looking to expand in Mexico and boost volumes to existing customers.

Hesse also pointed to a wider drop in demand for aluminum, saying customers were carrying metal from contracts this November and December into January and February of next year. That means about 90% of his customers aren’t starting new contracts until February or March of 2023.

The situation for aluminum has been further complicated by the possibility of US government action. Bloomberg reported last month that the White House was weighing possible sanctions or tariffs on Russian aluminum.

“Russian aluminum is still flowing, very few customers are saying ‘we don’t want Russian metal,’” Hesse said. “We do have some customers who have made that moral decision, but overall there’s a demand for the metal.”

A spokesperson for Nornickel declined to comment.

(With assistance from Jack Farchy)


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