Theme of the Day: LME moves to stop gaming of Russian aluminium sanctions-based rule

The LME moved to stop traders from taking Russian aluminium from its approved warehouses and returning it at a later date to profit from rule changes to comply with new sanctions. For metal produced before 13 Apr, LME rules differentiate between Type 1 and Type 2 Russian warrants which created an opportunity to tie up metal in lucrative "rent deals". Clarification of the rules was to stop rent deals or agreements that allow LME warehouses to share their fees or rental income with companies that deliver metal to them.In response to recent geopolitical developments, the LME has taken decisive action to comply with sanctions related to Russia's invasion of Ukraine. Effective immediately, the LME has prohibited the acceptance of Russian aluminium, copper, and nickel produced from 13 Apr onwards.For metal produced before 13 Apr, the LME has implemented new rules regarding Type 1 and Type 2 Russian warrants. These changes aim to prevent the exploitation of "rent deals" and ensure equitable treatment within the market.Type 1 contracts allow for the unrestricted trading of Russian metal warrants existing before 13 Apr, while Type 2 covers metal produced before 13 Apr but not yet on LME warrant. Notably, UK companies can only trade or take physical delivery of Type 2 metal for non-UK clients.To address potential loopholes, the LME clarified that when a Type 1 Russian Warrant is reissued, owners have the option to convert it to a Type 2 Russian Warrant. This adjustment aims to maintain market integrity while facilitating fair trade practices.Our industry sources confirm that these refinements are designed to prevent rent deals, where LME warehouses share fees or rental income with delivering companies. Under rent deals, the company that delivers metal to a warehouse does not have to retain ownership, but can get a share of the rent, paid by the new owners, for as long as the metal stays in that warehouse. By closing these loopholes, the LME aims to ensure fairness, reduce administrative burden, and uphold market integrity.We remain committed to facilitating the circulation of globally usable metal while safeguarding our market from potential breaches of UK sanctions. Your understanding and cooperation are appreciated as we navigate these regulatory changes together.