LME's plans to address Russian metal trade seen supporting Chinese aluminum: sources

The London Metal Exchange's plan to restrict Russia-origin metal entering its warehouses could be a pivotal point for Chinese aluminum prices, combined with support from domestic production situation and output cuts, industry sources said Oct. 10.

China's aluminum prices were expected to remain volatile in the near term before the LME makes a final decision around suspending the trade and storage of Russian metals, sources said.

The most-active aluminum futures contract for delivery on the Shanghai Futures Exchange -- November -- closed at Yuan 18,565 ($2,599)/mt on Oct. 10, up 1.6% from the pre-holiday settled price, according to the SHFE data. The rise was mostly attributed to the increase seen at the LME.

The LME released a discussion paper Oct. 6 on the possibility of banning Russian aluminum, nickel and copper trade and storage activities through the exchange, amid concerns around market participants increasingly rejecting the products at a time when 2023 contract negotiations have been progressing.

Meanwhile, production cuts have been continuing in Europe and China.

Supported by the output cuts and LME plans, aluminum prices on the LME rose during China's National Day holidays as a supply glut in LME warehouses would be eliminated once the exchange restricts new deliveries of Russian aluminum.

The LME's three-month aluminum official offer rose to $2,345.5/mt on Oct. 7, up 6.8% from the level on Sept. 30.

Earlier, markets were concerned that Russian metal producers, including Rusal, would not be able to sell aluminum and could choose to deliver the metal to registered warehouses of LME, which could have pushed up inventories at the LME warehouses and weigh on prices.

Russia is the world's key primary aluminum producer, with Rusal's output accounting for about 6% of global production.

China's imports from Russia were not expected to rise significantly in coming months as domestic capacity has been growing, sources said.

China's primary aluminum imports from Russia in August increased 7.5% month on month to 41,978 mt, which accounted for 85% of the nation's total imports.

Meanwhile, smelters in Sichuan are resuming production, but the progress remains slow due to fresh COVID-19 cases and repair works at the electrolytic tanks, sources said.

China's market participants are keeping an eye on post-holiday consumption. Downstream demand has recovered slightly but remains lower than previous years, which could cap surge in domestic prices, sources said.