Iron ore cooperation

The Donetsk and Lugansk Republics may obtain the Russian iron ore with a discount.
Iron ore "Severstal" can be forwarded to the Enakievo and Alchevsk metallurgical plants, which since March are "in temporary management" of the People's Republic of China and the People's Republic of China. OAO RZD has already agreed to give a discount to the tariff of 25% for such a route. In "Severstal" they insist that they do not trade with unrecognized republics, but experts point to the possibility of deliveries through intermediaries.

The Management Board of JSCo Russian Railways announced the introduction of a 25% discount on the transportation of iron ore raw materials from the Cherepovets-2 station to the Uspenskaya station in the Rostov region and from the Kostomuksha-commodity station to the Liski station in the Voronezh region by the end of the year. The Cherepovets-2 station is serviced by the Severnstal Cherepovets Steel Plant, and Karelsky Okatysh is also located near Kostomuksha-commodity, Interfax notes. Uspenskaya is a border station between the Russian Federation and the part of the Donetsk region of Ukraine that is controlled by the NDP.

In "Severstal" do not comment on the introduction of discounts. Russian Railways explained that "any discount is introduced based on economic feasibility" and can be introduced both at the request of the shipper and at the initiative of the monopoly, but did not clarify how this is the case in this case. Discount is not tied to volumes. In mid-March, RBC reported that a meeting was held in the government of the Russian Federation with the participation, in particular, of Severstal, at which companies were recommended to "pay attention to a new market" for supplies of iron ore resources - which were in the blockade of the People's Democratic Republic and the People's Republic of France. In companies, this information was refuted, and then press secretary Dmitry Peskov called it "untrue". In Severstal yesterday they repeated to Kommersant that they do not sell or supply products to companies in the territories of the People's Republic of China and the People's Republic of Germany.

In the NDP there are Enakievo and Makeevka Metinvest metallurgical plants Rinat Akhmetov, in LNR - Alchevsk Iron and Steel Works of ISD group (it is believed that 50% of the group is held by nominal owners in the interests of VEB). ZHRS needs Enakievo plant (output in 2016 - 1.9 million tons of steel) and Alchevsk combine (1.4 million tons). In March, the authorities of the People's Democratic Republic of France and the People's Republic of Finland in response to the transport and trade blockade by Ukraine announced the transfer of Ukrainian assets in the republics to their "provisional administration." SCM Holding Rinat Akhmetov confirmed the loss of control over assets. At the same time on April 7, the head of the DNR, Alexander Zakharchenko, said that "all the necessary contracts have been signed," and this week the first raw materials for the Yenakiyevo plant should arrive.

Maxim Khudalov from ACRA indicates that intermediaries who are not afraid of sanctions may take part in supplying the Severstal iron and steel in the NDP and LNR, while the discount from RZD will reduce the cost of sales by 7-10%. The FCS may ask the metallurgists for the direction of shipments of ore, but in the case of "high-level agreements," there should not be questions, the expert believes. About 1.6 million tons of pellets are used for melting tons of steel, in 2016 Severstal sold about 6 million tons to the market. According to Mr. Khudalov, this would be quite enough for "republican" enterprises, based on their last year's indicators and probable problems with the sales market.

The discount is probably introduced in order to create an opportunity to support the work of metal processing plants in the territory of the People's Republic of China and the People's Republic of Germany in conditions when the railway communication with Ukraine is blocked, says Mikhail Burmistrov, head of Infoline Analytics, agreeing that the shipments are most likely to be carried out by non-affiliated Traders. Now the volume of traffic to these stations is small - up to 19.3 thousand tons per month, while iron ore was not transported there in March, he adds.