Blog: You, us, everyone

Last week, the US and the UK announced new sanctions targeting Russian metals: deliveries of new Russian metals supplies into the London Metals Exchange and Chicago Mercantile Exchange warehouses are now banned. It caused a spike in some industrial metals on Monday (aluminum and nickel opened up by c. 9% in Asia, as Russia amounts to c. 6% and c. 5% of global production respectively), which moderated during the session.

These measures won’t restrict the vast majority of the global trade in metals. However, and according to a Bloomberg article, the sanctions aim to close Russia’s back door for selling metals. In fact, China acts as Moscow’s buyer of last resort for all sorts of prime iron ore, thereby potentially leaving Russian supplies trading at deepening discounts to benchmark LME prices.

Up to now, iron ore trades take place through the exchange, with the sanctions in place trade will take place between miners, traders, and manufacturers. This divergence offers greater opportunities for arbitration and reflects the reality that the global industries have taken one step back to the past when markets were fragmented and illiquid.