Citigroup Inc., a global financial institution, has reportedly acquired around $160 million worth of Russian aluminum from the London Metal Exchange (LME), despite the reluctance of many banks to engage with Russian aluminum since the invasion of Ukraine by Russia.
According to insider sources, LME reported last Friday that an American bank had requested the transportation of approximately 75,000 tons of aluminum from a warehouse in South Korea owned by the Kwang Yang company. These sources, who requested anonymity due to the private nature of the matter, stated that the metal originated from United Co. Rusal International PJSC, a Russian aluminum producer.
While there is no comprehensive ban on trading aluminum from Russia, the subject has taken on a political hue within the metal industry since Russia’s invasion of Ukraine last year. In February of this year, the United States imposed a 200% tariff on Russian aluminum imports, citing the industry’s “significant role in providing weapons and ammunition for use in Russia’s war efforts.”
Aluminum is used in industries such as construction, packaging, and transportation. Some buyers and traders have sought to avoid Russian supplies, either for moral reasons or due to the increased logistical and financing challenges. Since the start of the conflict, many banks have refused to trade or finance Russian metals.
Insiders reveal that Citigroup had avoided Russian aluminum until recently. Aside from competitors like Goldman Sachs Group Inc. and JPMorgan Chase & Co., Citigroup is one of the few banks that plays a significant role in the industrial metal market.
It remains unclear what Citigroup intends to do with the aluminum, and whether the transaction was conducted on its own behalf or on behalf of clients. In recent times, the discount on immediate aluminum contracts relative to later delivery contracts has reached its highest level in 15 years. This presents an opportunity for traders or banks to secure guaranteed returns by purchasing and storing metal.
Citigroup declined to comment on the matter.
The role of Russian aluminum in the LME has been a subject of intense lobbying, with American and European producers arguing that excessive Russian aluminum sales are distorting prices. Last year, LME considered banning new deliveries of Russian metal but ultimately decided against it.
Since then, the proportion of Russian aluminum in LME’s warehouse stocks has continued to increase, reaching 81% by the end of July. Producers including Alcoa Corp. and Norsk Hydro ASA have recently urged LME to reconsider this issue.
Some banks that continue to trade Russian metal make a distinction between metal purchased directly from Russian producers and metal acquired through the LME. They argue that the latter case does not involve financing of Russian entities, as payments are made to LME’s clearinghouse.
Citigroup’s acquisition aligns with LME’s view that Russian aluminum should continue to flow from its warehouses and, therefore, should still be eligible for listing on the exchange.
“We closely monitor levels and flows of Russian metal through our physical network, reflecting the behavior of our underlying market users,” stated a spokesperson for the exchange last Friday. “We note that all metal originating from Russia continues to be consumed widely by the marketplace, and we will remain vigilant on this matter.”
Post time: Aug-21-2023