Liberia-flagged Aframax tanker Suvorovsky Prospect discharges fuel oil from Russia at the Matanzas terminal, in Matanzas, Cuba, July 16, 2022. REUTERS/Alexandre Meneghini/File PhotoRegister now for FREE unlimited access to Reuters.comSINGAPORE/WASHINGTON, Sept 9 (Reuters) – The price cap that G7 countries want to impose on Russian oil to punish Moscow should be set at a fair market value minus any risk premium resulting from its invasion of Ukraine, a U.S. Treasury Department official told reporters on Friday.The price should be set above the marginal production cost of Russia’s oil and take into consideration historical prices, said Elizabeth Rosenberg, U.S. Treasury Assistant Secretary for Terrorist Financing and Financial Crimes.The G7 price cap plan agreed last week calls for participating countries to deny insurance, finance, brokering and other services to oil cargoes priced above a yet to be set price cap on crude and two oil products. read more Register now for FREE unlimited access to Reuters.comRosenberg said services providers would not have to police price cap compliance themselves but could rely on the attestations of buyers and sellers, leaving enforcement to participating jurisdictions.She said the G7 countries – Britain, Canada, France, Germany, Italy, Japan and the United States – would work together in coming weeks to determine the capped price and other key implementation details.”There are several key data points we are considering and how the prices should ultimately be set and that includes the marginal cost of production for Russian oil,” Rosenberg told a briefing call held for media in Asia.”The price cap price should be … in line or consistent with historical prices accepted by the Russian market.”That could imply a potential cap of around $60 a barrel, experts say, as Russian Urals crude, based off of benchmark Brent, sold for $50 to $70 a barrel in 2019.Russian government documents have identified a marginal crude production cost of $44 per barrel, although some Western officials believe it may be somewhat lower.A European official said G7 members had not begun formal discussions about the price cap, although officials had “notions” about what was possible.”The idea is that you still incentivize Russian oil producers to export by guaranteeing a price in line with their cost of production with a small incentive,” the official said.U.S. Treasury Secretary Janet Yellen and other Biden administration officials have been travelling to oil consuming countries to promote a mechanism that seeks to cut Russia’s oil export revenues, the lifeblood of its war machine, without reducing volumes of Russian shipments to global markets.Russian President Vladimir Putin has said Russia would halt shipments to countries that impose the price cap. read more Putin says Russia is conducting a “special military operation” in Ukraine to protect his country’s security against expansion of the Western military alliance NATO. read more Register now for FREE unlimited access to Reuters.comReporting by Florence Tan in Singapore, and David Lawder, Timothy Gardner and Andrea Shalal in Washington; Writing by Timothy Gardner and David Lawder; Editing by Christian Schmollinger and Tom HogueOur Standards: The Thomson Reuters Trust Principles. .
LME registered and “shadow” stocksSTOCKED OUTThis is currently happening in the LME zinc market. The cash premium over three-month metalAvailable live stocks shrunk to a depleted 14,975 tonnes at one stage in June and are still a meagre 22,475 tonnes.The rest of the headline zinc inventory of 82,200 tonnes is scheduled to depart.It also happened to sister metal lead last year, when the cash premium spiked to over $200 per tonne in August as LME on-warrant stocks fell to less than 40,000 tonnes.Time-spread tightness has been a recurring feature of the LME lead contract ever since and the cash premium is once again edging wider, ending Tuesday valued at $33 per tonne.That’s because lead stocks haven’t rebuilt in any meaningful way, currently totalling 39,250 tonnes with available tonnage at 34,850.The LME tin market has been living with depleted stocks since the start of 2021 and backwardation appears to be now hard-wired into short-dated spreads.PHYSICAL TIGHTNESSLow LME stocks of all three metals reflect extreme physical supply-chain tightness.All three have seen significant supply disruption over the last year with tin smelters hit by coronarivus lockdowns, zinc smelters in Europe powering down due to high energy prices and the Stolberg lead plant in Germany out of action since July 2021 due to flooding. read more Physical premiums for all three metals have hit record highs in Europe and the United States and remain close to those levels even as outright prices have dropped like a stone.The LME has acted as market of last resort for physical buyers and stocks will only rebuild once the supply-chain pressures pass.Chinese exports are helping rebalance both lead and zinc markets but the process is a slow one as freight and logistics bottlenecks brake arbitrage flows.
LME, CME and Shanghai Futures Exchange copper stocksCOPPER’S MUTED REBUILDCopper was stocked out last October, when live LME tonnage fell to 14,150 tonnes and the cash premium exploded to an eye-watering $1,000 per tonne.The LME intervened with lending caps and deferred delivery options, a tool-kit now extended to all its physically-deliverable contracts after the March nickel debacle.LME registered copper inventory recovered to a May peak of 180,925 tonnes but the trend has since reversed. Headline stocks have fallen back to 130,975 tonnes with fresh deliveries being offset by a string of cancellations as metal is turned around for the exit door.Indeed, combined inventory across all three major copper trading venues – LME, CME and the Shanghai Futures Exchange (ShFE)- totalled 261,000 tonnes at the end of June, up 71,000 tonnes on the start of January but down by 150,000 tonnes on June 2021.It’s a muted rebuild considering the world’s largest buyer – China – spent much of the first half of the year constrained by rolling lockdowns.
LME registered and shadow aluminium stocksOFF-MARKET BUILD?Weaker Chinese demand doesn’t appear to have made any impact on ShFE copper inventory, which remains low at 69,000 tonnes, down from 129,500 tonnes a year ago.However, the headline stocks may be deceiving.The Chinese market has been rocked by another multi-pledging stocks scandal reminiscent of the Qingdao fraud of 2014.That seems to have triggered movement of both aluminium and zinc into safe-haven storage and may be deterring copper exchange deliveries.It’s quite possible that such rotation between visible and non-visible storage is accentuating the LME stocks downtrend as well.Registered aluminium stocks, for example, collapsed by 64% over the first half of the year. Live tonnage stands at just 156,300 tonnes.Yet there is no sign of tension in aluminium time-spreads, the cash-to-three-months period trading in mild contango.The market seems to be assuming that there is no shortage of aluminium despite the headline stocks figure ticking lower every day.But if metal is available, it is evidently sitting in the statistical darkness.One small clue as to its existence was a 92,000-tonne build in LME shadow aluminium stocks over the course of April and May.Such metal is primed for LME warranting if price and spreads move into the right alignment and the recent rise suggests that some metal at least is being enticed back to the paper market from the physical market.REGIONAL IMBALANCEJust about all of the shadow aluminium stocks build has occurred in Asia, which accounted for 87% of the 289,978 tonnes in this category at the end of May.LME warehouse locations in Europe held just 21,642 tonnes and U.S. ones 14,608 tonnes.The same regional skew is clear to see across all the LME base metals and is as equally true of registered stocks as it is of shadow inventory.It is a symptom of the supply and freight issues that have roiled the metals markets since the onset of COVID-19 two years ago.It is also a warning that metals supply chains are still far from functioning efficiently, even as prices bow to the weight of macro selling.The opinions expressed here are those of the author, a columnist for Reuters.Register now for FREE unlimited access to Reuters.com
