1、 Event

On April 12, 2024, the United States and the United Kingdom announced new trading restrictions on Russian aluminum, copper, and nickel, prohibiting LME and CME from using aluminum, copper, and nickel produced on or after April 13; Aluminum, copper, and nickel produced before April 13th are not subject to new regulations. In addition, the United States also prohibits the import of these three metals from Russia.

2、 Comment

The production and marketing of Russian copper enterprises are less affected by the event: according to the ICSG statistical data, in 2023, Russia's refined copper output will be 1.025 million tons, accounting for 3.78%, making it the fifth largest copper producer in the world. Since 2018, Russia's refined copper output has remained around 1 million tons annually. In 2022, the Russia-Ukraine conflict and European American sanctions will not affect Russian copper output; In 2023, the global export volume of refined copper from Russia will be 620000 tons, and its main export regions are China, Türkiye and the European Union. In 2023, the export volume of Russia to China will increase by 14% to 370815 tons, the export volume to Türkiye will increase by 61% to 171260 tons, and the export volume to EU countries will decrease by 79% to 62372 tons. After the Russia-Ukraine conflict in 2022, Europe and the United States imposed sanctions on Russia, and the Russian copper export place will be transferred from Europe to Central Asia. Although LME, COMEX and the United States and the United States ban the sale of Russian copper this time, it is not difficult to find new export places for Russian copper. In 2023, China's annual import volume will be 3.74 million tons, which can absorb the trade share of Russian copper flowing out of Europe. It is expected that the new regulations will not affect the production and sales of Russian copper, but will further promote the flow of Russian copper to China.

Domestic copper export window opened: As of April 12th, LME copper inventory was 124000 tons, COMEX copper inventory was 26000 tons, and LME+COMEX copper inventory was at a low level. Starting from January 2023, LME has released data on the source countries of registered warehouse receipts. The proportion of Russian copper in LME copper registered warehouse receipts is relatively high, with the lowest being 23% in September last year and the highest being 94% in January last year. As of March this year, the proportion of Russian copper in LME registered warehouse receipts was 62%, reaching 60750 tons. Due to the inability of Russian copper produced after April 13 to be registered in LME and COMEX, it is expected that LME and COMEX inventories will decrease, leading to a narrowing of the LME0-3 Contango structure. Under the influence of China's expansion of smelting capacity and the resale of copper from Russia to China, the copper supply in the Chinese market is expected to shift to the LME market. On Monday, the Shanghai London ratio fell below 8 due to this new regulation. Although it has since rebounded, the domestic copper export window is still open.

Overall judgment: Restricting copper trading with Russia by the UK and the US will not change the global supply of refined copper, but it will change the flow of global copper trade. The amount of Russian copper entering China will increase, and China's import demand for refined copper will gradually decrease in the context of its own smelting capacity expansion. The inflow of Russian copper will pose a downward risk to the Shanghai London ratio. This new regulation has a relatively small impact on the absolute value of copper prices, but more on the price comparison. In the future, the space for China's import window to open will gradually be compressed, and the export window is expected to open, thus balancing the domestic and foreign markets. However, copper prices are expected to further rise under the logic of a favorable macro environment and an improvement in mid-term supply and demand.