One of my favorite places to hunt for dividend stocks is among the companies Wall Street is avoiding—and chiefly among these, at the moment, are materials stocks. Wall Street is fearful a deep recession will hurt demand for materials, especially industrial metals, so it keeps…
selling off these companies’ stocks.
Meanwhile, Wall Street is also totally ignoring reports of potentially massive shortages of industrial metals, recession or not. The news—as with so much financial news lately—comes out of the U.K.
That creates a nice opportunity for us…
Russian Metal Ban
We’re all familiar by now with the fact that Russian energy exports have been put on a blacklist, resulting in higher oil and natural gas prices.
But now, the London Metal Exchange (LME)—the world’s largest market in standarized forward contracts, futures contracts, and options on base metals—is facing pressure from many traders to stop accepting Russian metal. The fear is that LME warehouses will become a stockpile for unwanted material, distorting global prices for commodities like aluminum and copper.
The LME plays a critical role in the daily functioning of the global industrial metals market, supplying metals when there is a shortage or taking metals into its warehouses when there is an oversupply.
The Financial Times reports that metals consumers are now saying to the LME: “Your contract is not fit for us at the moment, we are self-sanctioning Russian material, we don’t want to dip into the LME warrant pool and pull out a warrant for Russian material.”
If the LME continues to accept unwanted Russian material into its warehouses while many of its users shun it, there could be an oversupply of unwanted base metals. The effect would be that LME prices would reflect the glut of cheap, unwanted Russian metal it holds and not the everyday price charged in real-life deals that happen directly between producers and consumers.
Many private deals already include a premium on the price for transactions that do not include metal supplied from Russia. For example, Chile’s Codelco—the world’s top copper producer—is selling its metal for $235 per ton above the LME benchmark three-month contract.
If this mismatch continues, it will undermine the LME’s role as a marketplace that sets a fair and accurate global market price for industrial metals.
In addition…
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