On April 13, the United States and the United Kingdom announced sanctions on three metals, aluminum, copper and nickel, produced by Russia. The world's major metal exchanges were ordered not to use aluminum, copper and nickel produced in Russia on and after April 13. Previously produced metals are not restricted and can still be traded. The United States has also banned direct imports of the three metals from Russia.
Aluminum: Short-term sanctions will lead to more Russian aluminum flowing into the Chinese market, increasing domestic supply pressure and negative Shanghai aluminum. Overseas deliverable source decreased, Lidoren aluminum. In the medium and long term, if Shanghai aluminum continues to fall, the rise of Lun aluminum will lead to the opening of the export window, or increase the export of domestic aluminum ingots with LME delivery brands, so as to achieve a new balance and long-term neutrality.
Copper: Sanctions may lead to tighter copper supply in Europe and the United States, while China and Turkey increase the supply level of Russian copper, accompanied by the subsequent inflow of Russian copper to China, London copper faces the risk of soft closing due to low inventory pressure, while Shanghai copper faces the pressure of making up for the fall due to the marginal correction of the supply and demand gap.
Nickel: The impact of sanctions on the nickel market is relatively limited, although from the perspective of stock, the proportion of Russian nickel inventory in the LME is relatively high, but with the continuous expansion of nickel delivery from China, the impact of Russian nickel on the fluctuation of LME inventory is gradually weakening, and the impact of China electrodeposited nickel is increasing, so the potential impact of sanctions may be partially offset by the continuous accumulation of China electrodeposited nickel. At present, the fundamental decline of nickel appears, if the short-term price rebound can be considered on the high cloth empty, the medium and long term continue to maintain the view of wide volatility.
I. Review of events
In February 2022, after the outbreak of the Russia-Ukraine conflict, Europe and the United States imposed several rounds of intensive sanctions on Russia, covering finance, energy, trade, science and technology, assets, transportation, network, culture, personnel and other fields. After the implementation of sanctions, copper, aluminum, zinc and nickel have risen significantly in a short period of time, of which Lun Nickel is a forced event, and then commodity prices have gradually returned to normal. On February 23, 2024, US President Joe Biden announced more than 500 new sanctions against Russia, and European countries immediately launched a 13th round of sanctions. The sanctions mainly include a larger route embargo and trade restrictions, which have a small impact on the price of related goods.
On April 13, 2024, the United States and the United Kingdom announced new trading restrictions on Russia, this time targeting three metals - aluminum, copper and nickel - produced in Russia. From that date, the world's major metal exchanges, such as the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME), are not allowed 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. On the other hand, the United States has also banned direct imports of these three metals from Russia, with the intention of limiting Russia's export capacity.
According to LME inventory data, the current total inventory of aluminum is 554,475 tons, of which the warehouse inventory registered in Russia is 311,900 tons, accounting for 56.25%. The total copper inventory was 112,475 tons, of which 60,750 tons were registered in Russia, accounting for 54.01%. The total inventory of nickel is 77,148 tons, of which the warehouse inventory registered in Russia is 24,858 tons, accounting for 32.22%.
Second, the impact of sanctions on aluminum: short-term interest in Duolun aluminum bearish Shanghai aluminum, medium and long term neutral
According to the United States Geological Survey data show that the global production of electrolytic aluminum in 2023 is 70 million tons, of which China's production is 41 million tons, accounting for 59%, followed by India, production of 4.1 million tons, accounting for 6%. Russia produces 3.8 million tons, accounting for 5% of the world's total, ranking third. Although the global share of Rusal production is not too high in absolute terms, considering that China is a net importer of electrolytic aluminum, Russia's global supply of electrolytic aluminum reaches 13% after excluding China's production supply, so Rusal still plays an important role in the global supply of electrolytic aluminum.
Between 2019 and 2023, Russia's aluminum production is on the rise year by year, and the total output in 2023 reached 3.8 million tons, an increase of about 160,000 tons from 2019. From the main market distribution of Rusal Group in 2023, its largest sales direction is the Asian region, accounting for 38.4% in 2023. This was followed by CIS countries and Europe with 31.9% and 27.8%. After Rusal Group in the Americas was sanctioned by the United States, it will mainly affect the supply of electrolytic aluminum in Asia and Europe. The Americas currently account for just 1.4% of sales.
The current sanctions in Europe and the United States will not affect the Russian aluminum ingots produced on April 13, so the Russian aluminum ingots in the LME warehouse can still participate in trading and delivery. However, it will lead to the subsequent production of aluminum ingots in Russia can not participate in delivery, and overseas delivery sources are reduced. Under the sanctions of Europe and the United States, Russia will have to consider selling more aluminum ingots to Asia, especially China.
In 2023, China's total imports of aluminum ingots will be 1.39 million tons, of which 1.245 million tons will be imported from Russia, accounting for 89.6% of China's total imports of primary aluminum. After the conflict between Russia and Ukraine, the volume of aluminum ingots exported by Russia to China continued to rise. It is expected that after the new sanctions, Russia's exports of aluminum ingots to China will further increase, putting pressure on domestic supply and pressuring Shanghai aluminum prices. On the other hand, at present, the global electrolytic aluminum supply is in a tight balance state, and the reduction in the supply of Rusal to other regions except Asia will also lead to the corresponding regional supply is tight, which makes the price of Lun aluminum priced by overseas fundamentals rise.
Finally, the possible situation is that with the increase of Russian aluminum imports, domestic supply pressure is greater, and overseas supply is facing a certain shortage. The Shanghai-London ratio continued to fall, and the export profit window expanded. Domestic production of aluminum ingots began to flow overseas, and even participate in the delivery of the LME market, at present, there are 11 LME registered brands in China (Chinalco, Cloud aluminum, Baoaluminum, Jiaozuo Wanfang, Qingtongxia, Shenhuo, etc.), the number is large. With the outflow of domestic aluminum ingots, the supply at home and abroad is balanced again, and the Shanghai lumbi value has steadily recovered. Therefore, our assessment of this event is bearish Shanghai aluminum in the short term, favorable Duolun aluminum, medium and long term neutral.
Third, the impact of sanctions on copper: Shanghai copper short-term pressure, London copper faces the risk of crowding
In 2023, the total output of refined copper in Russia is 1.025 million tons, accounting for about 4% of global copper production, and the share of Russian copper production in global production has been maintained at about 4% from 2015 to 2023. In terms of copper concentrate, Russia produced 1 million metal tons, accounting for 4.5% of the global copper mine, lower than Chile (5.5 million tons), Peru (2.2 million tons), the Democratic Republic of the Congo (2.2 million tons), China (1.9 million tons), the United States (1.3 million tons), ranking sixth in the world.
From the perspective of export structure, Russian copper was mainly exported to Europe and China. In terms of copper concentrate, Russia is not the main country of China's copper imports, from January to October 2023, China's import of copper concentrate structure, Russian copper accounted for about 2.6% (shipping, railway land transport), far lower than Chile, Peru, Australia and other countries. In terms of refined copper, Russian refined copper is exported to Europe (44%), China (32%), Asia excluding China (22%, mainly Turkey), and the United States (3%). The amount of refined copper imported from Russia fluctuates, but the proportion of copper imported from Russia shows an upward trend, in 2015, the proportion of copper imported from Russia is only 3%, and in 2023, the proportion of copper imported from Russia reached 11%. From the data point of view, affected by the early export sanctions signal, Russia's copper exports to the EU in 2023 have been reduced by 80% year-on-year, and at least 50% of the reduction has turned to China and Turkey.
The trading sanctions of the United States on Russian copper are expected to benefit US dollar copper in the short term and negative domestic copper, while aggravating the risk of copper crowding on the LME and limiting the rise of Shanghai copper. Sanctions on Russian copper trade have restricted European copper import channels, cutting the supply of nearly 10% of apparent consumption. However, at the same time, the import supply of Russian copper in China and Turkey is expected to increase by at least 15% and about 60% respectively (an increase of more than 45,000 tons and 63,000 tons). Then, under the impact of copper imports, the profit level of imported copper is expected to be limited. In addition, the current domestic copper inventory is as high as 300,000 tons, while London copper inventory has fallen to a low level of 120,000 tons, with the subsequent inflow of Russian copper to China, London copper faces the risk of soft closing due to low inventory pressure, while Shanghai copper faces the pressure of compensating for the marginal correction of the supply and demand gap. If the export window continues to open, in the case of delivery profits, it is not excluded that China's copper delivery brands registered in the LME participate in delivery, according to statistics, there are 25 LME delivery brands registered in China, including Zijin Mining, Daye, Jinchuan, Jiangcopper and other enterprises.
Fourth, the impact of sanctions on nickel: the impact is weaker than copper and aluminum, it is recommended to sell mainly on high
Between 2014 and 2023, Russian and global nickel production is on a downward trend year by year. Global nickel production decreased from 791,000 tons in 2014 to 640,000 tons in 2023. Russian nickel production decreased from 228,000 tons in 2014 to 154,000 tons in 2023, but the ratio of Russian nickel production to global nickel production remained basically unchanged, maintaining at around 25% from 2016, with the reduction of nickel imports in China, the amount of nickel imported from Russia is also decreasing. Russian nickel exports to China in 2023 will be only 38,000 tons. However, due to the decline of total imports, the proportion of Russian nickel in China's import supply is constantly increasing. After the implementation of new sanctions, the proportion of Russian nickel exports is expected to further rebound.
Since 2016, as China's nickel imports have decreased, the amount of nickel imported from Russia has also decreased, and Russia's nickel exports to China in 2023 are only 38,000 tons. However, due to the decline of total imports, the proportion of Russian nickel in China's import supply is constantly increasing. After the implementation of new sanctions, the proportion of Russian nickel exports is expected to further rebound.
We believe that the impact of sanctions on nickel is relatively limited: 1. Affected by the low nickel price, Nickel Nickel announced a production cut of about 10% at the beginning of 2024, and the margin of Russian nickel supply has been weakening since 2024. 2.LME nickel delivery continues to expand, and Chinese products have become the main factor affecting inventory changes. On April 12, 2024, LME issued a notice "HUAYOUgx" brand electrodeposited nickel successfully registered delivery brand, so far LME has successfully registered 5 Chinese nickel delivery products. Considering the "fast market channel" and the large expansion of China electrodeposition nickel in 2023, it is expected that the Chinese registered brands will continue to increase in the future, and it can be observed that the month-on-month change of Chinese nickel brand in the current LME inventory remains at the level of 2000-3000 tons, and the inventory fluctuation level since 2024 is higher than Russian nickel; 3. In fact, even if Russian nickel is not subject to sanctions, European buyers have already begun to spontaneously boycott Russian nickel, and the main sales market of Noel has turned to China; 4.LME's risk control level has been continuously improved, and relevant risk countermeasures have been continuously improved. Therefore, nickel is expected to be less disturbed than copper and aluminum, but the impact of short-term emotional disturbance cannot be ruled out.
From the fundamental point of view, affected by the reflation expectation game, the nickel price in the early stage goes up with the non-ferrous plate beta, but we have repeatedly suggested that the nickel market fundamentals are very weak, unilateral upward persistence is insufficient, Shanghai Nickel or will maintain 13-14w wide volatility, short-term operation on the basis of high distribution empty, medium and long term continue to maintain the view of wide volatility.
