Indian companies are exploring trade settlements in Yuan as they eye coking coal and pulverised coal imports from Russian traders and suppliers. Some are already using the Euro and Emirates Dirham for settling transactions.
Traders are offering Russian coal to Indian steel mills, reportedly at a 25–30 per cent discount.
At least two private banks have reportedly been issuing letters of credit for the trade of Russian coal, either in Chinese Yuan or Euro.
Apart from steel mills, an Indian cement-maker has already opted for Yuan trade to bring in Russian coal.
The dollar is the currency of choice for global trade in raw materials, but some traders say alternative currencies are being increasingly explored to settle payments for supplies from Russia.
“We had reached out to some PSBs for a Letter of Credit (LC) since we were looking to bring in coal from the European nation. Settlements were to be made in euros. However, the PSBs have refused to go ahead with LC for Russian trade. Hence, we approached a private bank who has been ready to go ahead with settlements in Euro. We are paying some extra for the conversion of dollars to euros in order for the settlements to happen and avoid sanctions, plus insurance costs,“ officials of a steel mill told BusinessLine.
Another mill-owner said it was open to Yuan trade and was exploring such options with banks. “One cement-maker has done it. And so we have asked our legal and procurement teams to study the modalities. If we can get the bank(s) on-board, we too may look at settlement of payment in Yuan,” the steel-maker’s official said, requesting anonymity.
Working around the sanctions
In order to facilitate the trade, most of these companies would raise purchase orders from their European, Middle East, or subsidiaries elsewhere in the world where trade with Russia is not come under sanctions. These subsidiaries would then buy the coal and ship the same to Indian players. Payment to the subsidiary would be made in alternate currencies.
These trade sources say this is the most simplistic way of working around the sanctions. However, there are other technical and legal issues that companies need to work on.
Trade estimates suggest Russian coal shipments to India are up 40–50 per cent on an annualised basis. For instance, use of pulverised coal imported from Russia accounts for 15 per cent of the total requirements of a steel major, compared to the previous 3–5 per cent.