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Russia – China. The scrap trade is flourishing and companies have found ways to avoid taxes and sanctions

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The Russian Copper Company (RCC) and Chinese companies avoided taxes and circumvented Western sanctions by trading copper wire rod under the guise of scrap, three sources familiar with the matter told Reuters.

The copper wire rod was shredded in the Xinjiang region to make it difficult to distinguish from scrap, sources said. This allowed both importers and exporters to obtain benefits resulting from differences in fees applicable to scrap and new metal.

In December, Russia's export duty on copper rods was 7 percent, while on scrap it was 10 percent. The import of copper rods to China is taxed at 4 percent, and there is no duty on the import of Russian scrap.

Data discrepancies

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According to Reuters, the sale of metals under the guise of scrap, which was scheduled to start in December, is reflected in the discrepancies in the statistics.

Chinese customs data show that China has bought much more scrap from Russia since December than the Russian data seen by Reuters. They showed a negligible amount of scrap exported to the Middle Kingdom.

Reuters asked Russian customs services about the discrepancies. “The Federal Customs Service temporarily does not provide data on foreign trade,” the service informed. Reuters reminded that the data has not been published since April 2022.

The Russian Copper Company is subject to Western sanctions. When asked about trading copper rods to Chinese companies, the company replied that it only supplies products to Russian companies. No further information was provided on this topic. In turn, Chinese customs services in Xinjiang, which borders Russia, did not respond to questions sent by Reuters.

Trade between Russia and China

Reuters noted that China became the main recipient for Russian exporters after the US imposed sanctions on Moscow for its full-scale invasion of Ukraine in February 2022.

It was noted that theoretically there are no legal obstacles that would prevent China from purchasing metal from Russian companies, despite Western sanctions. However, sanctions may mean problems with processing payments and lending money. According to Reuters sources, some Chinese companies have created special departments dealing with cooperation with Russia.

The agency said that in December, Chinese companies made five purchases of products marked as “copper rod” from an RCC plant in the Urals region. Revenues from this transaction amounted to approximately USD 65 million.

It was noted that Russia has never been a major seller of scrap to China. Meanwhile, since December, imports of scrap from this direction have increased significantly. Monthly imports at the beginning of this year reached 11,599 tonnes, while in 2021-2022 each month it averaged a maximum of 125 tonnes.

Main photo source: EPA/MAXIM SHIPENKOV

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