Abstract: On November 11 (local time), the LME (London Metal Exchange) issued a response to the Russian metal discussion paper, deciding to maintain the status quo and not to prohibit or impose additional thresholds on Russian metals.
After more than a month, on November 11 (local time), LME (London Metal Exchange) released its response to the Russian metal discussion paper and decided to maintain The status quo; there is no additional prohibition on Russian metals and no additional thresholds. The LME said it had concluded from feedback received that most market participants still planned to continue purchasing Russian metals in 2023. As a result, the LME does not recommend a ban on deliveries of Russian metals or a threshold for Russian inventories. (Delivery is not prohibited, and no threshold is set! The world’s largest nickel trader passed the hearing of the Hong Kong Stock Exchange)
This incident began at the end of September this year when the LME announced that it was considering issuing a market-wide consultation document to solicit market opinions on the continued acceptability of Russian metals. By October 6, the LME issued a discussion paper seeking feedback on the continued acceptability of good deliveries of Russian metals on the LME, with a deadline of October 28. The LME said it would continue monitoring Russian metals’ flow in LME warehouses. To provide more transparency to the market, the exchange plans to issue regular reports from January 2023 detailing the percentage of Russian metals held in LME warehouses. Through this data, the LME will closely review the various situations, continue to analyze the pros and cons, and participate in formulating the rules of the trading market. Gu Fengda, director of the research and consulting department of Guosen Futures, told China Business News that the latest survey shows that the proportion of Russian metals in LME’s existing inventory is different. Among them, Russian metals account for 54% of Lunco, Lunal, and Lunnickel. %, 15%, 5%, the conclusions of the LME’s discussion on Russian metals this time will help alleviate the current disturbance expectations of the non-ferrous metal supply chain and bring a certain degree of cooling to some non-ferrous metal prices that are in low inventory, consolidated balance, and high premium.
According to Gu Fengda’s specific analysis, judging from the changes in the non-ferrous metals market in November, the LME’s unresolved policy discussion on banning Russian metals has made the market worry about the LME’s insistence on “no additional sanctions against Russia” in the first half of the year. “The position will continue to loosen, which will cause greater uncertainty to the global non-ferrous market, which has a fragile supply chain. The abovementioned concerns drove domestic and foreign non-ferrous futures to soar intraday, especially copper, aluminum, nickel, and other key Russian-related metals in LME warehouses. However, when the market calmly thinks and returns to rationality, domestic and foreign non-ferrous metal prices may face adjustments, such as a certain range of gains and withdrawals, but the subsequent improvement in macro expectations will further continue the optimistic situation and expand the price increase of risky assets such as non-ferrous metals. Including China’s internal and external measures to strengthen stable growth policies and the latest domestic adjustments to epidemic prevention and related measures, it is more positive for improving the market’s macro expectations.
“LME maintains the status quo of Russia’s metal trading policy, dispels market concerns, and correspondingly reduces the risk of corner positions. It is slightly negative for the market prices of LME-related metal products, but the overall impact is not significant.” China Securities Futures Metal analyst Wang Yanqing said that, in fact, the overall market of non-ferrous metal futures recently followed macro logic. First, the US CPI fell short of expectations, the Fed raised interest rates and eased, and the U.S. dollar index fell. Optimism.
Judging from the recent trend of some non-ferrous metal varieties, LME nickel and LME copper have fluctuated and risen since November. Among them, LME aluminum, LME zinc, and LME nickel rose by more than 5% on November 11; in the domestic market, Shanghai nickel and Shanghai aluminum Shanghai Copper and Shanghai Copper have all had a relatively strong rally since November. On November 11, Shanghai Nickel and Shanghai Aluminum rose by more than 1%.
Looking forward to the market outlook, Gu Fengda said that although there are still many uncertainties at home and abroad, the recent major adjustments in China have stabilized the risk appetite of the financial market. In recent days, the superposition of positive macro and industry influences has had a greater impact on the short-term market of bulk commodities represented by non-ferrous metals. Major short-term macro benefits are expected to drive further upside of non-ferrous products in the next month.
Regarding investment advice, Gu Fengda believes that institutional investors should change their thinking and be highly optimistic about the rebound and repair space of non-ferrous metals. Structural opportunity to earn spot premium income and futures exposure adjusted simultaneously; downstream enterprises purchasing raw materials can choose to place hedging positions in distant months to partially avoid the risk of contract basis weakening in recent months.