By Vladislav Vorotnikov
The mounting difficulties in making payments for Chinese mining equipment due to Western sanctions is casting a shadow of uncertainty over the future of Russian operations. In the first half of 2024, Chinese imports of machines, equipment, and components, a category involving almost all mining equipment, showed a mixed dynamic, declining in the first months of the year but reportedly slightly rebounding in recent months.
In March 2024, deliveries dropped to $10.7 billion, against $13.2 billion in March 2023, Russian Bussing Consulting, a local think tank, estimated, citing data from the Russian Federal Customs Service.
In total, imports in this segment dropped by 20% in the first quarter of 2023, and the downward trend continued in April, Russian Bussing Consulting said, not providing concrete figures.
More detailed data is unavailable due to a partial information blackout imposed in 2022 and further tightened in 2023 to safeguard foreign trade from Western sanctions.
Problems with making payments to Chinese suppliers are believed to be the key factor dragging trade volumes down after nearly two years of consistent growth.
Chinese banks have started to scrutinize payments to and from Russia following the December 2023 threat by U.S. President Joe Biden to impose secondary sanctions against banks and financial institutions in countries facilitating trade with Russia.
Since imports of mining equipment from Western countries stalled, China has become the lifebuoy for the Russian mining industry. In the first half of 2023, Russian imports of trucks, including haul trucks from China, jumped by 260% from $463 million to $1.7 billion. Imports of special equipment such as bulldozers, excavators and drilling machines nearly tripled from $574 million to $1.7 billion, the Russian Federal Customs Service showed.
For the drilling segment, Chinese and Turkish equipment suppliers have plugged the gaps left by Western suppliers’ departure, said Dmitry Stukalov, a spokesperson of Prodrill, a local engineering firm.
He estimated that between 2019 and 2022, Russian mines imported 146 drills, primarily from Europe and Canada. However, in 2022 imports from Western countries nearly came to a halt with only three units delivered by traditional suppliers that year: one each by Sandvik, John Deere and Epiroc.
Despite that, imports from China and Turkey compensated for this decline, with the total deliveries reaching 39 units, close to the average yearly level, Stukalov estimated.
The transition was not entirely smooth, Stukalov admitted. Some of the new brands emerging in the Russian market lacked experience and offered solutions of dubious quality, a factor that was compensated only by their low cost compared with Western technologies, he added.
Keeping trade with China running is becoming increasingly challenging for Russian businesses. “We changed five banks last year. The situation changes daily: someone finds new ways of payment, someone losses them. As a result, the importer must have three or four accounts in different banks, three or four transit banks and be ready to pay in a variety of currencies,” Stukalov said, adding that this adds uncertainty to the future of the imports.
In May and June 2024, Russia-China trade turnover climbed by 1.8% and 5%, respectively, as reported by the General Administration of Customs of China. Occasional reports indicate that Russian firms managed to open corporate accounts in small Chinese banks, which have no ties with the Western market and are less concerned over the impact of the U.S. secondary sanctions than big players.
As the U.S. broadened the criteria for imposing secondary sanctions in June and the Group of Seven (G7) sent new warnings to smaller Chinese banks to stop assisting Russia in evading Western sanctions, Russian miners might be bracing for new ups and downs in the coming months.
