Steel mills consider paying for Russian coal in yuan and alternative currencies

Indian companies are exploring Yuan trade deals as they eye imports of coking coal and pulverized coal from Russian traders and suppliers. Some already use the euro and the Emirates dirham to settle transactions.

Traders offer Russian coal to Indian steel mills, apparently at a 25-30% discount.

At least two private banks have reportedly issued letters of credit for Russian coal trading, either in Chinese yuan or in euros.

In addition to steelworks, an Indian cement manufacturer has already opted for trading in the yuan to bring in Russian coal.

Alternative currencies

The dollar is the currency of choice for global commodity trading, but some traders say alternative currencies are increasingly being explored to settle payments for supplies from Russia.

“We had contacted some PSBs for a letter of credit (LC) since we were looking to bring in coal from the European nation. Payments had to be made in euros. However, the PSBs refused to go ahead with LC for Russian trade. Therefore, we approached a private bank that was prepared to settle in euros. We pay extra for converting dollars to euros so that settlements take place and avoid penalties, plus insurance costs, officials at a steel mill said. Activity area.

Another mill owner said he was open to trading in yuan and was exploring such options with banks. “A cement worker did it. So we asked our legal and purchasing teams to study the terms. If we can get the bank(s) on board, we too could consider settling the payment in yuan,” the steelmaker’s official said, speaking on condition of anonymity.

Getting around the sanctions

In order to facilitate trade, most of these companies would place purchase orders with their European, Middle Eastern or other subsidiaries in the world where trade with Russia is not subject to sanctions. These subsidiaries would then purchase the coal and ship it to Indian players. Payment to the branch would be made in other currencies.

These trade sources say this is the most simplistic way to circumvent sanctions. However, there are other technical and legal issues that companies need to work on.

Trade estimates suggest Russian coal shipments to India have increased by 40-50% on an annualized basis. For example, the use of pulverized coal imported from Russia represents 15% of the total needs of a large steel company, against 3 to 5% previously.

Published on

July 09, 2022

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