Hydro thinks Russian aluminium stocks in LME weighing on benchmark prices; urges exchange to look into it

Norsk Hydro wrote a letter to the London Metal Exchange last week urging to rethink the decision not to ban Russian aluminium from its warehouse network. Norsk Hydro believes that a large volume of aluminium arriving from Russia is weighing on the benchmark metal price on LME.

"As LME aluminium prices are referenced in contracts between consumers, producers and traders, the dominance of Russian aluminium in the system is a problem," said Norsk Hydro's Chief Financial Officer Paal Kildemo.

Russian aluminium stock in LME-registered warehouses in June accounted for 80 per cent, compared to 68 per cent in May and 41 per cent in January. That, according to Norsk Hydro, indicates a lack of acceptance for Russian aluminium in the market. Although there are no international sanctions against Russian metal, consumers are shunning aluminium produced in Russia.

The LME responded to Hydro by saying that it would closely monitor the arrivals of Russian aluminium to ensure no orderliness.

"We note that all metals of Russian origin continue to be consumed by a broad section of the market, and we will remain vigilant in respect of this matter," the LME said in an emailed comment.

In this regard, Rusal, the Russian aluminium giant, commented that removing Russian metal from the LME-listed warehouses would disturb market liquidity because the company sees a worldwide acceptance of its low-carbon aluminium.

Hydro even asked in its letter if the London Metal Exchange obtained any guidelines from Britain's Financial Conduct Authority (FCA) on the risks to the orderly functioning of the market from Russian aluminium.

The FCA replied, "We continue to engage with the London Metal Exchange on its controls to ensure it meets its obligations to maintain fair and orderly markets, including in the LME aluminium market. We expect the LME to utilise necessary controls to meet its regulatory obligations."