China set to benefit from ban on Russian metals
Sanctions by the United States and Britain on Russian metals will cement China as Moscow’s buyer of last resort for key commodities and enhance Shanghai’s role as a venue to set prices for materials crucial to the global economy.
The London Metal Exchange’s (LME) ban on newly produced Russian aluminium, copper, and nickel is likely to drive Chinese imports even higher.
It also leaves the Shanghai Futures Exchange (SHFE) as the only major commodities bourse in the world to accept Russian shipments of the three metals.
“The liquidity of Russian metals in European and American markets may further decline, and global trade flows will also be reshaped,” said Wang Rong, a senior analyst at Shanghai-based broker Guotai Junan Futures.
Energy market sanctions imposed on Moscow in the wake of its invasion of Ukraine have already had a dramatic impact on China’s buying habits.
Russia leapt above Saudi Arabia to become the biggest source of Chinese crude oil imports last year.
Even without formal sanctions, China’s imports of Russian aluminium have hit record levels. Russian aluminium giant United Rusal International generated 23 per cent of its revenue from China last year, up from just 8 per cent in 2022.
The new sanctions will push more exports of Russian metal to countries outside US and British jurisdictions, especially China, according to Guotai Junan.
Chinese importers have taken advantage of Beijing’s strategic alliance with Moscow to win discounts on key raw materials, paying in yuan to bypass the US dollar, the currency in which trades are usually settled. That helped the world’s biggest commodities buyer stave off the inflationary impact of the war in Ukraine and advance Beijing’s desire to unseat the US dollar as the world’s reserve currency.
But more Russian shipments becoming available at a time when China’s economy is so sluggish presents its own problems. Chinese metals traders struggled last year with weak demand and the green shoots of recovery in markets for items like copper are relatively recent.
The prospect of additional Russian supplies heading to China widened the spread between London and Shanghai metals in early trade yesterday. While LME aluminium jumped by as much as 9.4 per cent, the reaction on the SHFE was more muted, with the rise in price capped at 2.9 per cent compared with Friday’s close.
China has long sought greater pricing power over global commodities given its hefty reliance on imports. How that plays out for the Shanghai exchange is complicated by the new sanctions rules, which will allow old Russian metals to continue to be delivered to the LME, the world’s benchmark, and the Chicago Mercantile Exchange, the premier exchange in the US.