Russia looks for new ways to sell its $20bn-a-year gold output

(Bloomberg) — Russia’s huge gold industry is looking for new ways to sell its metal, such as exporting more to China and the Middle East, as sanctions clog its traditional sales routes.

Bloomberg’s Most Read

The second-largest bullion miner is finding that markets in Europe and the US are largely closed due to a ban on newly produced Russian gold, with some refiners refusing to re-melt old bars. The country’s miners have generally sold to a few mostly state-owned local banks such as VTB Bank PJSC and Bank Otkritie, which then export the metal, or until a few years ago to the central bank.

But the sanctions mean selling to those banks is not an option now, and while the Bank of Russia has said it will start buying gold again after a two-year pause, it is not expected to buy as much as before.

That has left Russia’s gold industry wondering how to sell the roughly 340 tons it mines each year, worth roughly $20 billion. There are not many unsanctioned banks that can realistically handle such volumes. And although the government granted miners general export licenses two years ago that allow them to export directly, few have used the process until now because they have preferred to rely on the sales infrastructure of banks.

That may soon change, however, as Russian miners are considering direct exports, and both producers and lenders are exploring sales in Asia and the Middle East, according to people familiar with the matter.

Polymetal International Plc is a producer looking to use direct exports, with sales opportunities to the United Arab Emirates and China, a spokesman said. Some other big miners have also started talks with Chinese and UAE-based companies, according to two people familiar with the matter, who asked not to be identified as the information is not public.

The Bank of Russia was once the largest sovereign buyer of gold, taking almost all of the country’s mining output before it halted purchases in early 2020. Its commitment to start buying again will help absorb some of the supply that was not can be exported.

“There are very good budget revenues,” said Natalia Orlova, an economist at Alfa-Bank. “Now they can only be saved through gold purchases.”

While the central bank significantly increased its gold holdings during 2019, transactions are likely to be more subdued going forward.

The central bank is capping the price at which it is willing to buy at 5,000 rubles a gram, about $1,880 an ounce at current exchange rates and below international prices. The planned purchases are designed to support sales by gold miners due to difficulties in exporting, and the domestic market will not be able to absorb those volumes, according to two officials close to the central bank who asked not to be identified.

The central bank did not immediately respond to a request for comment.

Retail Potential

More business could also come from the domestic retail market. The government canceled the value-added tax on such purchases, a move long discussed, following the fallout from the war in Ukraine.

“We are seeing a significant increase in demand for gold at retail,” the Polymetal spokesman said. “Banks are willing to pay for it using the international reference price, and not at 5,000 rubles.”

Although gold prices do not tend to react to supply and demand fundamentals in the same way as other commodities such as base metals, energy or agriculture, the prospect of reduced Russian exports would reduce global supplies. .

“The gold market is usually in surplus,” said Suki Cooper, an analyst at Standard Chartered Plc. “If demand from Russia grows, output from its mine is not reintroduced to the international market, and ETFs absorb excess supply, the gold market could be closer to balance for the first time since 2015.”

Most Read Bloomberg Businessweek

©2022 Bloomberg LP

Previous post Italy’s BEV market fell in February: waiting for new incentives
Next post Sorry to Say: You Probably Shouldn’t Claim Social Security at Age 62 | personal finance
%d bloggers like this: