LME Reprieve Sends Russian Firms Scrambling to Sell Metal Stocks

In the wake of Russia’s unprovoked invasion of Ukraine, several Western countries passed a series of sanctions against the Kremlin to weaken its economy and slow down its war effort. The effects of these sanctions, coupled with a general unwillingness among foreign companies to work with Russian companies, led to a slowdown in supply deals for various metals.

Russia is a major player in the global mining industry, producing a large chunk of the world’s iron, gold, nickel, diamond, platinum, palladium and platinum.

Amid sweeping bans on Russian exports, the London Metal Exchange recently announced that it would not ban Russian metal from being delivered against its contracts. Although the move has disappointed some producers who had lobbied for a ban on Russian products, Russian companies are now scrambling to sell metal stocks.

Companies such as United Co Rusal International PJSC and MMC Norilsk Nickel PJSC (Nornickel), which had to contend with delayed annual supply deals due to uncertainty, are now rushing to finalize contracts with buyers. According to Rusal, it is now settling North American contracts although it expects sales to go down by around 4% to 5% as some companies simply aren’t willing to purchase Russian metal.

Nornickel has also seen an uptick in sales activity after the LME announcement, a confidential source revealed. The source stated that the company, which does not issue reports on its contracts, should finalize signing its annual contracts by mid-December.

Nornickel expects to meet its targets for palladium and platinum sales but may be unable to deliver on its goal for copper and nickel. This is likely because Nornickel doesn’t trade its palladium and platinum at the LME, unlike its nickel and copper, which are traded at the exchange.

In a local TV interview in September, Nornickel CEO Vladimir Potanin said that the company had been thinking of redirecting some sales to the east prior to the LME discussions to potentially avoid the fallout. The LME decided to allow Russian metal despite lobbying from major producers, which argued that unpopular Russian metal could end up on the metal exchange and distort prices.

Even though most large metal producers rarely, if ever, sell their metal directly on the London Metal Exchange, having the ability to deliver to the LME makes financing metal easier and can be crucial when there is an oversupply.

Russian companies such as Rusal, which is the only aluminum producer in the country, have stated that they also have “no intention” to deliver metal to the LME.

Players such as Eloro Resources Ltd. (TSX.V: ELO) (OTCQX: ELRRF) in the metals industry are likely to watch and see how the flurry of activity triggered by Russian entities rushing to sell their stocks will affect the overall market for those different metals.

NOTE TO INVESTORS: The latest news and updates relating to Eloro Resources Ltd. (TSX.V: ELO) (OTCQX: ELRRF) are available in the company’s newsroom at http://ibn.fm/ELRRF

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