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Hardships in Russia’s Act in Supplying Commodities to China

Trade relations between China and Russia became complicated. After the war started, this raised additional questions about the future flow of metals, energy, and crops between the two power plants. Before the Ukraine War, Russia’s importance to China as a supplier of raw materials was only growing. This was reinforced by the “unlimited” friendship between the two nations announced before the Winter Olympics in Beijing. Mentioned by signing new deals with China’s Russian oil, wheat, and gas supplies.

Chinese officials said they did not agree to unilateral sanctions following the invasion. Accordingly, they would continue normal trade relations with Russia. However, banks stopped financing their purchases. Traders are also struggling with logistics, while China’s foreign minister recently said Beijing did not want sanctions to affect them. US President Joe Biden warned the Chinese president of the expected consequences if the country supports Russia’s invasion of Ukraine.

The most significant trade opportunities may be in energy. The growth of its economy means that China has a growing demand for coal and gas to heat homes and power plants. The country is rich in coal. However, it is still prone to a deficit. It is also relatively poor gas, making imports crucial to keep up with demand.

Russia is now the second-largest carrier of coal in China after Indonesia. Its gas exports increased significantly, especially since the Siberian pipeline started flowing in 2019. The supply of crude oil also increased in recent years – including pipeline oil. Russia was China’s second-largest supplier in 2021, second only to Saudi Arabia.

Supplying Commodities

Since 2020, Russian coal has contributed to the shortfall caused by China banning Australian shipments and the latest delays in shipments from Mongolia and Indonesia. Moreover, the US and Australia supply China with slightly more than half of their liquefied natural gas imports, traveling by ship. Consequently, this is an attitude that Beijing is trying to remove.

However, after the invasion, Chinese buyers and lenders who financed their purchases largely avoided Russian shipments of coal and LNG, and crude oil. Given the unknown endpoint of international action against Moscow, this hesitation may be temporary. However, this may also reflect the companies’ deep concern about getting into sanctions. This could affect global banking arrangements and government fears of closing more important Chinese goods markets. According to Capital Economics, constant access to the US financial system is more valuable than any deal it can make with Russia for any Chinese firm with significant overseas operations. However, some small firms may want to take the risk.

Several Chinese coal importers and Russian miners met this month to discuss increasing the volume—several obstacles named, including whether a Chinese yuan-based cross-border payment system will be used. In addition, problems with transportation capacity and coal quality. Of course, China is committed to the long-term success of Russia’s most significant energy projects. Another pipeline is under consideration. Wood Mackenzie estimates that China’s oil and gas investments in the neighborhood are $24 billion. These include stakes in Arctic LNG and Yamal projects in Russia.

Issues and Russia-China Relations

There is no way China can follow international companies and leave Russian energy assets. The country has enormous growth potential for Russia. Under these conditions, it would be strange for China to reduce Russian LNG purchases in the long run. However, the prospect of coal is entirely different. Russian sales are almost a spin blunder compared to the 4 billion tonnes of fuel cited. Beijing’s plan to boost the coal industry by 300 million tonnes also suggests it is trying to increase its energy security by halting imports altogether.

For crude oil, the calculation also revolves around high freight rates and high premiums on Russian shipping due to the war. Many countries supply oil to China. Consequently, buyers can be more observant even when prices are too high.

Conclusion

Rising transport costs are also a potential deterrent to expanding grain sales to Moscow. Russia sells wheat in more than 100 countries. However, China was one of the few major markets that had difficulty until the sanctions.

China gave the green light to wheat imports from all over Russia in February; As part of the deals made during Vladimir Putin’s visit to Beijing. It was expected that this move would protest sales from countries such as the US, Australia, France, Canada. However, despite the restrictions being lifted, experts say China is likely to continue to import from its conventional sources.

China’s dependence on Russia has only weakened in recent years for some metals. Indonesia has become a significant supplier of nickel. While Russia’s share of refined copper imports has increased, the expansion of China’s smelting industry means that ore imports directly from miners in places like South America have become more critical. China already buys most of Russia’s cultivated copper exports.

For palladium, mainly used to reduce vehicle pollution, Russian exports to China have increased in recent years and may increase even more. A potential hurdle, according to UBS, is that companies listed in Europe produce most of the catalysts sold in China. Consequently, they may not want a Russian supply.

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