USA added UMMC to SDN list

UMMC, Russia’s largest copper producer, has come under US blocking sanctions. Counterparties were given time until October 18 to complete all relations with her. The company does not disclose data on export directions, but Europe and China have traditionally been the main buyers of Russian copper. The sanctions are likely to lead to the need to redirect supplies to China, which will mean a decrease in export margins.

UMMC, the beneficiary of which is the son of the former Minister of Foreign Affairs of Uzbekistan, Daniyar Kamilov, in the latest annual reports, enabled to the SDN list. The company’s counterparties must, in accordance with the license issued by OFAC, complete transactions with it by October 18. UGMK companies Uralelektromed and UMMC-OTsM, which are part of the UMMC group, also fell under US sanctions. UMMC has not yet commented on the impact of the sanctions.

The company is the largest Russian copper producer, and also mines zinc, coal and precious metals. Its beneficiaries for many years until March 2022 were Iskandar Makhmudov and Andrey Bokarev. The new shareholder structure was not disclosed.

UMMC has become the third major non-ferrous metals producer in Russia after Polyus and Polymetal to be included in the SDN list over the past three months.

If the main ferrous metallurgy companies in Russia fell under US sanctions last year, then until recently the US Treasury avoided introducing restrictive measures against non-ferrous metallurgy, fearing a shortage of these metals on the world market. The largest players, Norilsk Nickel and Rusal, are not under direct sanctions, although they suffered indirectly due to the need to restructure supply logistics and settlement schemes.

UMMC does not publish production results, in the report “On the state and use of mineral resources of the Russian Federation in 2020”, the production of refined copper by the company was estimated at 432.6 thousand tons, by Nornickel – 422 thousand tons, and by the Russian Copper Company – 200.5 thousand tons. According to the Ministry of Industry and Trade, specified in the strategy for the development of Russian metallurgy until 2030, Russia exported 463 thousand tons of copper in 2021, which is 40% less than in 2020, with a production of 989 thousand tons and a doubling of domestic consumption to 531 thousand tons.

In 2022, according to UMMC RAS ​​reporting, the company reduced its profit by 2.2 times, to 14.7 billion rubles. Sales revenue increased by 7.4% to RUB 299.48 billion. Of these, 231 billion rubles. was received from the sale of copper products (a decrease of 0.7% compared to 2021), 25.43 billion rubles from zinc products (an increase of 6%) and 3.4 billion rubles from ferrous metallurgy products (an increase of 25.2%). The company’s copper export volume in 2022 amounted to 54.5% of total production and decreased by 13 percentage points compared to 2021.

The company does not disclose the countries where the metal is exported. According to US customs data, there are no significant deliveries of copper from Russia. In 2022, the EU purchased 301.6 thousand tons of copper from Russia, and China – 320 thousand tons.

The global copper market is currently in short supply. By the end of 2023, Nornickel expects a deficit of 160 thousand tons, which by 2023 may increase to 5-9 million tons due to the growth in the production of electric vehicles and green energy. However, the refusal of Western clients to buy UMMC copper is likely to lead to a decrease in the company’s margin due to the loss of the premium market and rising costs. Independent industrial expert Maxim Shaposhnikov believes that numerous traders will be used to maintain sales, through which flows of metal will flow. “Copper is a fairly scarce commodity and it will not be very difficult to sell it through gray schemes,” the analyst believes. In his opinion, the loss of margin in exports will not exceed 2-3 percentage points.

Evgeny Zainullin