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Norilsk Nickel to move copper smelter from Russia to China as sanctions bite

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Norilsk Nickel, the metals group controlled by Russia’s richest man Vladimir Potanin, will move some copper smelting production from its home country to China, as western sanctions restrict access to key pieces of equipment and cut profitability.

Potanin said in an interview with state media outlet Interfax that the mining major plans to replace copper smelting capacity at the Nadezhda plant in the Russian Arctic with new facilities in China from 2027 onwards.

The Russian oligarch provided one of the most detailed accounts yet of how western sanctions are hampering the country’s commodities exports, one of the Kremlin’s key sources of funding its invasion of Ukraine.

Potanin said the sanctions have cut Norilsk’s revenues by at least 15 per cent since 2022 because of a gamut of difficulties around international payments, delivery refusals and pricing discounts, as well as troubles over plans to reduce sulphur dioxide pollution at its copper plants.

Russian President Vladimir Putin has already signed off on the plans, according to Potanin. The issue is included on the agenda for “Russia-Chinese meetings” at the highest level — an apparent reference to Putin’s planned trip to meet Chinese leader Xi Jinping later this year — and “has received political support”, Potanin said.

Potanin said sanctions pressure had made Norilsk “think about the right way to get our goods to the market” and decide to “move it to where it is consumed, and the final product will be sold as Chinese”.

“A Chinese good is much harder to sanction in China than a Russian one supplied to China.”

Potanin said the new plan would protect Norilsk’s exports from growing US pressure on financial transactions with Russia. “Settlements are one of the tightest places even in friendly jurisdictions, they don’t let exporters and importers work normally,” he said, adding that the company needed to avoid risks of operations ceasing because of problems with settlements.

Norilsk will pay three to four times more on debt servicing than three to four years ago because of the sanctions, while the difficulties of completing transactions have forced the company to pay commissions of 5 to 7 per cent to its middlemen.

Analysts said the move highlighted deepening ties in key commodities trade between Moscow and Beijing.

Colin Hamilton, a commodities analyst at BMO, said Norilsk’s move represented a further shift towards “Russian copper being in effect a quasi-captive China supply, and bolstering China’s self-sufficiency”.

Potanin said China’s dominant role in metals consumption — it accounts for more than half of the world copper and nickel trade — meant Russian producers were already heavily reliant on their largest customer.

“This dependency increases along with sanctions pressure. We won’t get away from it, but if we’re more integrated into the Chinese economy, we’ll be more protected than if we don’t have it,” he said. “We are dependent on the Chinese system, but it’s better to be inside looking out, not outside looking at how you’re getting squeezed.”

Potanin’s complaints about the cost of sanctions reflect wider concerns in Moscow about US pressure on banks doing business with Russia, said Alexandra Prokopenko, a former central bank official.

“The financial sanctions are a bottleneck,” she said. “Major banks have stopped working with Russian clients. Mid-sized and small ones still do but putting the payment chains back together has driven up commissions for Russian business, and China’s tougher compliance means there are three to five banks in the chain, rather than two.”

The Potanin interview comes just after the US and UK took their biggest step yet to impose sanctions on Russian metals by banning copper, nickel and aluminium from being traded on the London Metal Exchange and Chicago Mercantile Exchange.

Potanin said those sanctions could affect Norilsk’s previous efforts to expand its nickel exporting capacity for western consumers, including by building a plant in Finland together with Germany’s BASF.

Norilsk had pledged to reduce emissions of sulphur dioxide — a toxic gas that leads to respiratory and cardiovascular diseases — by 90 per cent by 2025 in the region. Norilsk, the town near the Nadezha smelter, has been called one of the worst polluted places on Earth.

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