Analyst: “As Rosreserv is indifferent to sanctions, Metinvest is largely unable to block the illegal use of its properties on the occupied territories. At the same time, the Ukrainian side can try to prevent steel production at Alchevsk Steel, also located on the occupied territory.”
KYIV, April 20, 2017 (UBO) - Russian state agency Rosreserv will supply iron ore to Ukrainian steel mills located on the occupied territory of Donbas, Concorde Capital informed its clients in an online advisory. The advisory was based on an rbc.ru news site report of April 13, citing its anonymous sources in the Russian government. According to the source, the state entity is purchasing iron ore concentrate from Kovdorsky Iron Ore of the EuroChem holding (EUCHEM). Kovdorsky produced 6.3 mmt of iron ore concentrate in 2016, according to EuroChem. Some part of the iron ore will be directed to Yenakiyeve Steel of Metinvest (METINV), located on the occupied part of Donetsk region, rbc.ru reported.
Recall, Metinvest announced on March 15 it lost control of Yenakiyeve Steel. The Ukrainian holding then issued an open letter on April 11 stating it is keeping a close watch on its property that was illegally seized and warned against any use of this property, which is illegal.
Concorde analyst Alexander Paraschiy added: Inserting into the iron ore supply chain a closed entity like Rosreserv - whose activity is secret - is a way for Russia to avoid putting its public companies (like EuroChem, Severstal or Metalloinvest) under risk of Western economic sanctions. With the use of this entity, the Russian government will try to support the steel mills of the occupied territories with raw materials. But it's unclear how and where Russia will sell the steel that is produced in this illegal way. Most likely, it will go for internal use exclusively in the self-declared Donetsk and Luhansk People's Republics.
As Rosreserv is indifferent to sanctions, Metinvest is largely unable to block the illegal use of its properties on the occupied territories. At the same time, the Ukrainian side can try to prevent steel production at Alchevsk Steel, also located on the occupied territory. The steel mill is controlled by IUD, the holding owned by the Russian state financial institution Vnesheconombank (VEB, already under U.S. economic sanctions since July 2014) and Ukrainian tycoon and MP Serhiy Taruta.
Unlike Metinvest, IUD did not announce any loss of control over its assets on the occupied territory, which means it is ready to operate there bypassing Ukrainian legislation. If it does so and pays taxes and fees to the “budget” of the so-called Luhansk Republic, the Ukrainian government may decide to impose sanctions against Taruta or VEB, which also has a large bank in Ukraine.