© Reuters. FILE PHOTO: Chinese yuan and Russian ruble banknotes are seen amidst the flags of China and Russia in this illustration photo taken Sept. 15, 2022. REUTERS/Florence Lu/Illustration/File Photo
(Reuters) – China has dramatically increased its use of the yuan to buy Russian goods over the past year, with almost all of its purchases of oil, coal and some minerals settled in Chinese currency rather than dollars, people familiar with the matter said. .
China’s imports of major commodities from its northern neighbor totaled $88.3 billion in 2022, up 52% from 2021 as refineries, utilities and smelters tapped reduced Russian resources after Western buyers shunned trade shortly after Moscow’s invasion of Ukraine.
Here are the details of China’s commodity imports from Russia:
Crude oil
More than half of China’s imports from Russia last year at 1.73 million bpd were seaborne shipments. They include ESPO blends loaded from Far Eastern ports in Russia, which is the preferred grade for Chinese independent refineries, and Urals loaded from Russian European ports.
In the first quarter of 2023, Russia leapfrogged Saudi Arabia to become the top supplier to China, with volumes rising by a third to 2.05 million barrels per day, worth $13.7 billion during the quarter.
Separately, China’s state oil major CNPC is buying about 800,000 barrels per day of ESPO blend from Rosneft through the East Siberian-Pacific pipelines under intergovernmental deals including an estimated $50 billion in loans and advance financing to Moscow.
CNPC prepaid a large share of the value of those contracts years ago, and has been paying entirely in yuan for supplies since mid-2022, according to two high-level sources familiar with the matter.
Rosneft and CNBC did not respond to requests for comment.
natural gas
China has switched to paying in yuan for pipeline gas imports via the Power of Siberia pipeline that came online in late 2019. Imports last year were 16 bcm, worth nearly $4 billion, a volume expected to reach 38 bcm. In the year 2025.
China separately imported 6.5 million tons of Russian LNG last year worth $6.7 billion, which is paid in dollars because the product is not subject to sanctions.
In addition, new gas supplies from Sakhalin Island in Russia’s Far East are expected in the coming years under a 30-year agreement reached in February 2022, with annual supplies reaching 10 billion cubic meters in 2026.
Coal and minerals
Second in value at $12.2 billion in 2022, settlements for almost all of China’s Russian coal imports have shifted from dollars to yuan since the Ukraine war, according to three Chinese importers.
China, the world’s largest metals consumer, imported $5.1 billion worth of refined and refined aluminum and nickel from Russia in 2022, up 16% from 2021 with higher volumes of imports so far this year.
Sanctions concerns aside, rising dollar borrowing costs and increasing use of the Chinese market to price metals imports have stimulated the use of the yuan.
Instead of the widely used London Metal Exchange pricing, some Russian imports are priced at spot prices or contracts on the Shanghai Futures Exchange (SHFE).
“For most of the time this year, China’s prices have been lower against the LME, so it will be less expensive to import for Chinese buyers to use China prices,” Lin Zhao, a Shanghai-based commodity strategist at Macquarie.
Zhao added that by using the RMB, buyers also benefit from avoiding exchange risks.