November 03, 2022
Statement regarding the London Metal Exchange’s Discussion Paper on Russian Metal
Alcoa Corporation urges the London Metal Exchange to act immediately and delist Russian-origin brands to protect the reputation and viability of the LME aluminum contract.
Alcoa made the proactive decision in March of 2022 to cease buying raw materials from, or selling products to, Russian businesses. While this impacted our business, it was the right decision to make. Several other industry participants have publicly announced similar bans on Russian-origin metal, and our discussions with commercial customers indicate that this position is widespread throughout the industry. These market developments create a risk that unwanted Russian-origin metal will flood into the LME warehouse system, which functions as a ‘market of last resort’ for LME listed brands, threatening to undermine the reliability of the LME aluminum contract.
In an Oct. 27 letter, Alcoa’s Executive Vice President and Chief Commercial Officer Kelly Thomas wrote that Russia’s invasion of Ukraine has not only caused a significant humanitarian crisis and an energy crisis; it also threatens to distort aluminum market pricing and raises a systemic risk to the reliability of the LME aluminum contract. If the LME does not act quickly to prevent a situation in which unwanted Russian-origin metal becomes the dominant brand in the LME warehouse system, the letter argues, the consequences to market participants and to the reputation and reliability of the LME aluminum contract could be severe.
The letter was sent on Oct. 27 to Matthew Chamberlain, the LME’s CEO, in response to the exchange’s Discussion Paper on Russian Metal. The exchange requested feedback from market participants regarding Russian-origin metal and possible routes forward to ensure that the LME remains a reliable and orderly market.
In the letter, Alcoa highlighted that LME aluminum stocks on warrant increased by 74 percent in a 23-day period from Oct. 3 to Oct. 26, prompting questions of whether this is indicative of a rush to deliver Russian-origin metal in advance of the closing of the LME’s consultation and emphasizing Alcoa’s call for increased transparency from the exchange regarding the quantity of Russian metal in inventory, both on- and off-warrant.
“While Alcoa certainly agrees that a significant near-term inflow of Russian metal could create upheaval in the market, we wish to point out that there is also a significant risk of systematic, ongoing deliveries of Russian metal in 2023 and beyond,” Thomas wrote. “Whether LME inventories accumulate quickly or more gradually, the result is the same – a growing predominance of unwanted Russian stocks in global inventories that would threaten the viability of the LME aluminum contract.”
Of the various options that the LME is considering, Alcoa believes that the LME must act decisively and implement a full and immediate suspension of all Russian metal. Anything less runs the risk of Russian-origin metal being rushed into the warehouse system, potentially creating the very problem that the LME is seeking to prevent.