The Russian Copper Company (RMK) and Chinese firms trade in new copper wire, disguising it as scrap, to circumvent Western sanctions and avoid taxes.
This was reported by Reuters with reference to three sources.
The copper wire was ground by a middleman in the remote Xinjiang Uyghur region so that it would be difficult to distinguish from scrap. This allowed exporters and importers to profit from the difference in tariffs applied to scrap and new metal.
The Russian export duty on copper wire in December was 7%, while on scrap it was 10%. The import of copper wire rod into China is taxed at the rate of 4%, and the import of Russian scrap is exempt from the duty.
Discrepancies between Russian and Chinese customs data indicate that sales of new copper under the guise of scrap began in December.
Chinese customs data showed that China has bought significantly more copper scrap from Russia since December than indicated by Russian figures obtained by Reuters from a trade data provider.
China has become the main destination for Russian companies seeking to export their goods after Western countries imposed sanctions against Russia for its full-scale invasion of Ukraine. At the same time, the USA and the EU introduced sanctions against Chinese companies for supporting Russiaʼs military actions in Ukraine.
Grinding copper wire rod is an effective way to disguise brand new metal as scrap metal. Long and thin rods of pure copper, which are mostly used in the production of power cables, are usually coiled for easier transport.
At the same time, copper scrap is a mixture of used wires and pipes. For transportation, they are crushed into tiny pieces or rolled up and pressed.
In addition to avoiding taxes, the crushed metal is harder to identify and trace, making it easier to sell copper to Chinese producers.
Theoretically, there are no legal obstacles for China to buy metal from Russian sanctioned companies. However, manufacturers still fear the loss of export business due to buyers who avoid providing any funds to Russia.
According to the provider of commercial data, in December of last year, Chinese companies made a total of five purchases of products labeled "copper wire rod" at the RMK plant in the Urals. Modern Commodity Trading DMCC, based in the United Arab Emirates, brought the Russian company about $65 million in revenue.
Russia has never been a major supplier of copper scrap to China. However, according to customs data, Chinaʼs import of copper scrap from Russia has increased significantly since last December.