Coal embargo, Alrosa in the SDN list, IT sanctions ease and the key rate cut

The EU approved the fifth round of sanctions

New sanction measures include:

  • Ban on coal imports from Russia starting from August 2022
  • Full ban on transactions with 4 banks, which have previously been cut off from SWIFT: VTB Bank, Novikombank, Sovcombank and Bank Otkritie
  • Ban on imports of selected categories of goods from Russia, including timber, cement, seafood and alcohol. Import restrictions are imposed on up to EUR 5.5 billion per year worth of goods
  • Ban on the export to Russia of quantum computers, semiconductors and transport equipment. Export restrictions are imposed on up to EUR 10 billion per year worth of goods
  • Russian and Russian-operated ships are prohibited from entering EU ports. Exceptions will be made for transporting essential goods, agricultural products, food, humanitarian aid and energy
  • Ban on Russian transport operators activities in the EU
  • Ban on the participation of Russian companies in public procurement in EU member states and any financial support of those.

In our view, the most significant restrictive measure is the coal embargo by the EU countries. The EU accounts for about 25% of coal exports from Russia. All this volume falls under the new sanctions. This measure was also joined by Japan, which accounts for about 12% of coal exports from Russia. According to our calculations, overall about 60% of Russian coal exports may be affected due to possible problems with logistics, the potential introduction of similar restrictions by other countries, the reluctance of individual companies to purchase Russian coal, motivated by the fear of falling under sanctions, etc.

In light of new restrictions, we expect continued growth in coal prices on the global market. Thus, despite new sanctions, in USD terms coal exports from Russia this year are expected to be higher than in 2021. In addition, the ban comes into force in August 2022, which gives Russia time to redirect part of this volume to other countries, such as India and Pakistan. In 2023 we expect a drop in coal exports by 20-30%. However, it is hard to make a forecast in USD terms since there is a high level of uncertainty about the level of coal prices during this period.

The US expanded the sanction lists

Alrosa was included in the SDN list. All operations and transactions with Alrosa are planned to be completed by May 7, 2022. US investors will have to sell the company’s shares and bonds by July 1, 2022.

Alrosa is the second largest producer of natural diamonds in the world, accounting to 30% of the global market. It is expected that such move will result in prices for precious metals rising by 30-50% in the coming quarters. According to our calculations, the company’s production volumes will fall by 30%, which will be partially offset by rising prices.

The US eased sanctions against the Russian IT sector

The new US bill allows all transactions necessary for the export and re-export, sale and supply of services, software and technologies in the internet communication sector. This includes instant messaging and photo technologies, video conferencing, chats, e-mails and so on.

The Central Bank of Russia cut the key rate by 300bp to 17%

As the regulator noted, the external environment still significantly limits Russian economic activity. The CBR said that inflation is likely to continue rising, however at a slower pace than expected earlier. The regulator maintains the prospect of further cuts at the upcoming meetings. The next key rate meeting will take place on April 29, 2022. We expect the CBR to continue cutting the key rate until it reaches 12-13% by the end of the year.

The CBR eased the currency control

The CBR announced gradual easing of control over the rouble:

  • From April 11, the regulator cancels commission of 12% for the purchase of currency from brokers, which was introduced earlier in March 2022
  • From April 18, the Russian banks will be able to sell foreign currency in cash
  • Clients of banks who opened foreign currency deposits before March 9, 2022 will be allowed to receive foreign currency in cash. However, the withdrawal limit remains up to USD 10 000.

 

Authors: Vladimir Tsuprov, CIO, Egor Kiselev, Head of International Business & Investment Marketing, Marina Tsutskiridze, Investment Specialist, Aleksandra Kuznetsova, Investment Specialist

Previous Story

Russia pays its debts in roubles, Sberbank and Alfa-Bank are in the SDN list