Factbox: Russian metals industry's reliance on China set to rise as sanctions disrupt supplies

Russia's metals industry is expected to lean on China as an export market following sanctions for its invasion of Ukraine.

Russian steelmaker Severstal said March 2 it was looking at alternative markets to export steel after facing challenges with European customers.

China has been a major buyer of Russian aluminum, nickel, copper and metallurgical coal, but steel trade between the two has been negligible and limited to semi-finished products.

Rich in natural resources, Russia is the world's third largest coal (thermal and coking) exporter and fourth-largest exporter of aluminum. It also has a decent market share for copper, steel and nickel exports.

While recently, steel trade between Russia and China has remained thin, the pressure of sanctions on Russia's billet exports could mean more could be shipped into China, industry sources said. However, the supply shift is expected to be somewhat limited as China itself has huge steelmaking capacity of 1.2 billion mt/year.

It is in nickel, metallurgical coal, copper and aluminum where there is scope for the two countries to expand trade, especially given China's electric vehicle ambitions, which require steady supply of nickel. Russian nickel supply will also be attractive to China following supply issues it has faced with Indonesia.

The impact of sanctions on any trade payments between Russia and China is expected to remain limited as several trades were already getting settled with Chinese yuan payments, according to sources.

Trade flows

Steel

• Russia exported 15.9 million mt of semi-finished steel and 16.8 million mt of finished steel in 2021, trade data showed.
• The top five destinations of Russian's semi-finished steel were Mexico, Belgium, Taiwan, Turkey and Kazakhstan, accounting for about 70% of the total exports. Meanwhile, the top five markets for Russian's finished steel were Turkey, Kazakhstan, Belarus, Poland and Uzbekistan, accounting for about 47% of the total exports, according to trade data.
• China's imports of semi-finished steel from Russia were at 0.8 million mt in 2021, while imports of finished steel were negligible, according to market sources.

Nickel

• China's unwrought non-alloy nickel imports from Russia were 44,693 mt in 2021, accounting for 20.3% of China's total imports, according to China's customs data.
• China's margins to import nickel remained negative with seaborne prices higher and domestic prices cheaper, a development following market expectations that more Russian nickel would be exported to China as trade flows to Russia's traditional destinations — the US and the EU — will take hit.

Copper

• China's refined copper imports from Russia reached 390,442 mt in 2021, accounting for 11.4% of the country's total, China's customs data showed.
• China's copper concentrate imports from Russia reached 428,767 mt in 2021, accounting for 1.8% of the nation's total, according to China's customs data.
• China's demand did not pick up as expected after the Lunar New Year due to high LME copper prices, which broke the $10,000/mt mark Feb. 21. Some smelters were looking for export opportunities due to lackluster domestic demand.

Aluminum

• China's primary aluminum imports from Russia were 291,036 mt in 2021, accounting for 18.4% of the country's total, China's customs data showed.
• Russia's largest aluminum producer Rusal alone shipped 3.9 million mt of aluminum in 2021, with sales to the EU and the US accounting for 49% of its total sales, according to company data.

Metallurgical coal

• In 2021, Russia exported around 30 million mt of met coal, with China accounting for roughly 30% of the shipments, China Merchants Futures data showed.
• China's met coal imports from Russia in 2021 rose 60% on the year to 10.74 million mt, in the absence of huge volumes from its traditional suppliers Australia and Mongolia, data by China Coal Transportation and Distribution showed.
• Russia's Ministry of Energy aims to lift total coal exports of metallurgical and thermal coal to China to 100 million mt/year in the next 3-5 years.

Prices

Steel

• S&P Global Commodity Insights assessed SS400 HRC 3 mm thick at $885/mt FOB China March 7, up 11.6% from Feb. 25. On a CFR Southeast Asia basis, the same grade of coil was assessed up 11.9% from Feb. 25, at $890/mt.

Nickel

• The most-active nickel contract for April delivery on the Shanghai Futures Exchange rose to an all-time high March 7 at Yuan 210,950/mt ($33,410.62/mt), up 12.7% from the previous close, SHFE data showed.

Copper

• The most-active copper contract for April delivery on the SHFE closed at Yuan 74,980/mt March 7, up 2.9% from the previous close, SHFE data showed.

Aluminum

• The most-active aluminum contract for April delivery on the SHFE extended its stay above the crucial level of Yuan 22,000/mt, closing at Yuan 24,020/mt March 7, up 2% from the previous close, SHFE data showed.

Metallurgical coal

• Premium low-volatility hard coking coal CFR China rose 3.8% from Feb. 24 to reach $410/mt March 7, reaching more than a three-month high, according to S&P Global data.Infrastructure

Steel

• The EU has sanctioned billionaire shareholders of major Russian steelmakers Metalloinvest and Severstal, a development the companies said they are assessing for potential impact on their operations.
• Metalloinvest is a major iron ore producer and the world's largest producer of hot-briquetted iron. The company's iron ore production reached 40.8 million mt in 2021, according to company data.
• If Ukraine suspends all its steel production and exports, while Russia's finished steel exports get blocked in major markets, demand for Chinese steel products is expected to rise, sources said.

Nickel

• Russia's Norilsk Nickel is the world's largest refined nickel producer. The company expects global demand for primary nickel in 2022 to rise on 9% growth in stainless steel output, also supported by strong nickel demand from China's battery sector.
• China's primary nickel consumption totaled 1.35 million mt in 2020, accounting for 57.9% of the world's total, a CNIA report stated Jan. 16.
• China's consumption is seen reaching 1.6 million mt in 2022, according to data from S&P Global Market Intelligence.

Copper

• Following the invasion, letter of credits remain suspended for Russia's copper concentrates, with some Chinese smelters turning to telegraphic transfer payments, according to sources.

Aluminum

• Sanctions on Russian aluminum could squeeze global inventories as they remain tight following China's recent curbs on the use of coal-based energy at smelters, according to the International Aluminium Institute.
• Sources said Russian aluminum companies may not witness direct sanctions after similar measures against Russia's Rusal in 2018 led to price hikes of more than 30% in a day.

Metallurgical coal

• Russia has over 5 billion mt of met coal reserves, according to China-based investment company Orient.
• Russia transports 50% of its annual coal exports via its huge railway networks, and any transport challenges could cap its overall exports, sources said. The US and the EU have imposed financial sanctions on the state-owned Russian Railways.