InvestorQ : How is Ultratech planning to leverage the Yuan trade route to import coal from Russia?
Priyanka N made post

How is Ultratech planning to leverage the Yuan trade route to import coal from Russia?

Neelam Naik answered.
2 months ago

Most of the cement companies in India have been fighting hard against rising operating costs, especially, the pressure coming from the cost of coal, fuel and freight. In the last few weeks, the coal prices had shot through the roof which had compressed operating margins of cement companies. Ultratech may have just found a solution of importing from Russia. Now, importing from Russia was never the problem, but the real issue was with the payment. It looks like Ultratech now has an answer to that problem also. Here is how.

Ultratech has worked out a system wherein they can import coal from Russia without worrying about the payment mode, since dollar payments are barred. For importing a cargo of coal from Russia, Ultratech will pay the sum of $26 million in equivalent Chinese yuan. As of now, the rupee rouble payment mechanism is yet to be put in place, so this is the best alternative available. Russia can be a huge supplier of coal and crude at much lower costs. In the process this will also insulate Moscow from the impact of Western sanctions.

China will not be complaining as this is an opportunity to further internationalize the Chinese currency and reduce the reliance on traditional hard currencies like dollar, pound, Yen or Euro. Effectively, this will chip away at the dominance of the US dollar in a rather big way. More than anything, it is a boost for Indian companies as it gives a mechanism of importing goods from Russia without worrying about sanctions and about dollar payments. Russia is big on crude oil, natural gas, coal, coke, ore and even sunflower seeds.

For the Indian companies, buying these products from Russia and paying in Yuan, cuts down on inflation. It can be an ad hoc mechanism till the Rupee Rouble channel is in place. Here is what Ultratech did in this case. They imported 157,000 tonnes of coal from SUEK of Russia worth $25.81 million. However, the payment was made in equivalent CNY172.65 million; or yuan payment. Many more Indian companies from the cement and steel space are expected to adopt a similar approach.

Not surprisingly, considering the sensitivity of the issue, India, Russia and China are tight lipped about this arrangement. It is also true that this is the one of a kind deal in the last 25 years. India had refused to vote against Russia either in the UNGA, UNSC or at the UNHRC. China has used Yuan to settle trades with Russia for years but India may not all that comfortable, especially considering the volatile border situation with China. India would want to limit this route or reduce the dependence on this route.