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Home - News - The conflict in the Middle East has intensified, Europe and the United States have introduced a new ban on Russian metals, and how will non-ferrous metals develop?

The conflict in the Middle East has intensified, Europe and the United States have introduced a new ban on Russian metals, and how will non-ferrous metals develop?

April 15, 2024
Recently, the overall trend of nonferrous metals is strong, copper trend is high and oscillating, zinc tin shows the characteristics of the rise, aluminum growth has slowed down, and lead nickel has not been moved. The rise of non-ferrous metals continued to be macro-dominated, and the economic recovery, improved demand expectations and the risk of reflation in the United States led to the non-ferrous metals anti-inflation attributes continued to rise. In terms of fundamentals, spot demand is weakened by high prices, and the divergence between prices and the industry is still continuing, but medium and long-term supply and demand expectations are still tight.
On the 14th, Iran launched a large-scale attack on Israel with missiles and drones. Iran's Permanent mission to the United Nations said Iran's attacks on Israel could be considered "over" and its response would be harsher if Israel made another "mistake."
Guocen Futures Nonferrous chief analyst Gu Fengda said that overall, after the Iranian military action, the United States direct military pressure in the Middle East is still large, the Biden government is currently extremely reluctant to be Israel involved in the greater Middle East conflict, the United States will protect Israel through participation in regional escort, and suppress Israel's impulse for large-scale retaliation. Netanyahu faces the pressure of the general election, urgently needs to consolidate his own power and support rate, and has the motivation to expand the Palestinian-Israeli conflict. A similar situation is also happening in Ukraine, and Ukrainian President Zelensky is also facing the lack of results in the war and the pressure of his approval rate declining. At this time, the Israeli and Ukrainian authorities hope to increase the regional conflict to divert domestic pressure. The intensity of conflicts in the Middle East and Russia and Ukraine are two major regional conflicts in the short term or difficult to decline, geopolitical instability and unpredictable macroeconomic prospects brought about by the demand for funds to hedge, may promote precious metals, nonferrous metals and other commodities in the early bright high, copper and aluminum waiting for a new round of pullback test support after the buying opportunity.
Separately, in the early hours of Saturday, the US and UK announced new trading restrictions on Russia, this time targeting three metals - aluminium, copper and nickel - produced in Russia. According to the new rules, since April 13, the world's major metal exchanges, such as the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME), will not be able to use aluminum, copper and nickel produced in Russia on and after April 13. However, Russian aluminum, copper and nickel produced before April 13 are exempt from the new rules and can still be traded on global markets.
Zhongtai Futures nonferrous analyst Peng Dinggui told the Futures Daily reporter that the LME suspended the Russian metal warehouse receipt, which has a high probability of triggering the shortage of LME market warehouse receipt. LME data shows that Russian metals accounted for 58 percent (37,600 tonnes) of LME metal shipments in January, 94 percent (44,375 tonnes) in February and 88 percent (38,775 tonnes) in March. As of the end of March, the number of registered warehouse receipts of copper, aluminum and nickel in Russia accounted for 62%, 91% and 36% of the positions, respectively. The sudden LME suspension of the production of Russian metal delivery may lead to the centralized delivery behavior of the holders to avoid risks. The delivery of Russian metal produced before April 13, with the continuous outflow of warehouse receipts, the expectation of insufficient warehouse receipts in the LME market is getting higher and higher. The pressure of short-term warehouse receipts is not big, but there may be a shortage of warehouse receipts in the long run. Backwardation and prices continue to rise.
In fact, Russia has an important position in the world's non-ferrous metal producers, Russia is the three largest exporter of refined copper, Russian copper annual output is basically stable at around 1 million tons, accounting for about 4% of the global proportion; Russia is the second largest aluminum producer in addition to China, with an annual capacity of 4.5 million tons and an annual output of about 3.8 million tons, accounting for 5% of the global share; Russia is also the world's third largest nickel producer, with an annual refined nickel capacity of 250,000 tons, or 6% of the world's total, and an annual output of about 190,000 tons. For LME metals, Russian metals account for a relatively high proportion of LME inventories and are more stable than metals from other regions. Among them, LME copper inventory is 125,000 tons, and Russian copper inventory in LME accounts for 62%; LME aluminum inventory of 520,000 tons, of which Rusal accounted for 91%; LME nickel inventory of 75,000 tons, Russian nickel accounted for 36%.
Zhan Dapeng, director of nonferrous research at Everbright Futures, said that Europe and the United States had repeatedly voiced sanctions against Russia, and the LME had also discussed banning Russian metal delivery in 2022, but at that time the opposition was larger and failed to effectively implement. The sanctions against Russian metals are intended to limit the Russian government's revenues by restricting Russian metals exports. At the same time, if Russian metals cannot be traded through normal channels, but can still be circulated in global trade, it means that there may be a larger discount, thereby limiting the sharp rise in global metal prices, so the purpose of sanctions is not to significantly raise the absolute price of non-ferrous metals worldwide.
"For copper and aluminum, which are relatively tight in supply and demand, the pressure is greater, and the price support is increased, but the nickel market is relatively oversupplied, and China's registered nickel production capacity has risen in recent years, and the pressure on nickel receipts is relatively small." Patten GUI said that according to foreign media reports on March 19, commodity trading giant Glencore recently delivered a large amount of Russian original aluminum to the London Metal Exchange (LME) registered warehouse in Gwangyang, South Korea, and how the follow-up situation will develop remains to be seen.
According to Guangzhou Financial Holding futures nonferrous analyst Li Jun, from the fundamental point of view, the current copper concentrate processing fees are low, reflecting the tight supply of copper concentrate; The maximum capacity of electrolytic aluminum in China is 45 million tons, which is difficult to increase. The current production of electrolytic aluminum is obvious, and the proportion of aluminum water is high, resulting in the inventory of aluminum ingots at the lowest level in the same period of nearly 5 years, and the current supply of electrolytic aluminum is also tight. Nickel is currently due to the general performance of downstream stainless steel, showing a state of oversupply, so in the short term, the rebound height of nickel may be weaker than copper and aluminum.
"From the perspective of the trade flow of Russian metals, the sales of Russian metals have gradually shifted to Asia and the Middle East and other regions, and the dependence on Europe and the United States is gradually decreasing." The problem of poor sales is being resolved, so the incident will not cause production cuts in Russian metals and therefore will not impact the global metal supply and trading system. But Russian metals are high in LME deliverable inventories, especially copper and aluminium, so there could be some panic in the market." Exhibition Dapeng said.
Patten GUI analysis said that the sanctions make the market on the Russian metal into the domestic market is also on the rise, a large number of Russian products to China has been a real problem, the inflow of more and more in the past two years, the degree of dependence on the Chinese market deepened. Although the Russian metal sales relative to the outer plate more discount, but its premise is that the Chinese market itself needs a large number of imports, the import window is open, Russian metal into the Chinese market depends on domestic demand. The sanctions themselves forced the Russian metal supply chain to reshape, but Russia was sanctioned in 2018, until the Russia-Ukraine war in 2022, Russia basically got rid of the dependence of the United States and European markets, so it does not affect basic Russian metal production and sales. At present, domestic copper and aluminum need a large number of imports, but nickel domestic electrodeposition nickel production capacity has risen, self-sufficiency rate has been increasing, and import demand has declined in recent years.
Looking forward to the future market, the exhibition Dapeng believes that the event caused short-term fluctuations in related varieties is inevitable, the current LME and domestic copper and aluminum in the upward trend, the hot spot will be amplified step by step. But eventually price volatility will calm down without disrupting the global supply and trading system. In addition, the Russian metal, especially copper and aluminum inventory in the LME accounted for a relatively large, the initial stage because of the market acceptance is reduced, but there may be the possibility of discount (discount) expansion; However, with the digestion and cancellation of this part of the inventory, it is necessary to pay attention to whether there are signs of inflow of other brand inventory replacement, otherwise the shortage of LME inventory will gradually emerge, and ultimately not conducive to the performance of LME metal prices, and is bound to affect its pricing authority in the global non-ferrous metals trading system.
In Patinggui's view, the impact on the domestic market may have two stages, the first stage is the emotional impact, the LME has risen sharply, the market is worried about the influx of Russian metals into the domestic market, will cause external strength and internal weakness, the import window is deeply closed, inhibit domestic imports, positive domestic supply and demand, and the support role of high prices is enhanced. The second stage is the completion of the reshaping of the overseas Russian metal supply chain, the fall of the overseas market, the return of the internal and external price differential, the import window is opened again, and the market returns to the fundamentals.
"In the short term, the United States sanctions against Russia will cause the market to worry about the global supply of non-ferrous metals and positive metal prices." From the macro atmosphere, although the short-term US inflation data is less than expected, the market's expectation of the Federal Reserve's interest rate cut still exists; In domestic news, China's official manufacturing PMI returned to the top of the line of growth and contraction in March, which is good for the overall non-ferrous metals." 'In the medium term, because of Russia's good relations with China, copper, aluminum and nickel, which are restricted to international trade, are likely to flow into China, be digested in China or exported from China,' Mr. Li said. Russian nickel exports to China accounted for about 30% of China's total nickel imports, Russian aluminum exports to China accounted for about 10% of China's aluminum imports, Russian copper exports to China accounted for about 50% of China's copper imports, and over time, the global trade of the three metals may be conducted in a new pattern. The US sanctions are expected to have a limited impact on copper, aluminum and nickel prices in the medium term, and the prices of the three non-ferrous metals will continue to be affected by their fundamentals.