Chinese firm to build copper, sponge iron, fertilizer production cluster in Russia

A Chinese engineering and construction company will create an industrial cluster in Russia's Chelyabinsk oblast, producing copper, direct reduced iron and fertilizers using captive natural gas and solar power generation.

The governor of the Urals-based region and the management company of the future industrial cluster, Smart Element, signed a memorandum of intent with CM Peace (Dalian) Ltd., which specializes in turnkey factory projects. The firm, part of China's CIMM Group, has been preliminarily selected to build the industrial cluster, which will include non-ferrous, ferrous and chemical manufacturing sites. The agreement also involves raising a portion of the undisclosed required investment, according to a statement from the regional government July 10.

The project provides for the construction of the Element 29 copper smelter with a capacity of 430,000 mt/year of copper cathode. It will also feature a direct reduction plant to produce sponge iron from iron concentrate, a by-product of the copper ore beneficiation process, as well as several plants for mineral fertilizer production and solar and gas-fired power plants.

Platts, part of S&P Global Energy, assessed hot briquetted iron prices at $322/mt CFR Mediterranean July 9, up $2 day over day and week over week. The daily assessment has recovered a little from its $315/mt level in late June, but remains notably below the $350/mt highs it reached in March, mirroring similar dynamics in Turkish scrap prices.

The proposed copper production represents almost half of Russia's current refined copper output and so could boost it by 45%, once the new smelter is operational.

Home market will use only 25% of output

Russia's leading non-ferrous metals producer, Nornickel, estimates copper production in Russia last year at 1.1 million mt of copper concentrates and 960,000 mt of refined copper, according to the company's latest copper market outlook released July 3.

In the same report, Nornickel said it is still assessing the feasibility of relocating its copper smelting operations from Russia to China, following the planned closure of the Copper Plant in Norilsk, which Nornickel considers inefficient for modernization.

The company also emphasized that copper production in Russia (refined volumes and those contained in concentrate combined) exceeds domestic consumption, which is estimated at 400,000 mt/year, by a factor of three. Therefore, once the Chelyabinsk smelter is up and running, this mismatch will become more pronounced.

It remains to be seen how the agreement between the Chelyabinsk government and the Chinese partner, along with US President Donald Trump's pending 50% tariff on copper imports, will affect Nornickel's plan for that refining capacity relocation and whether the company will now expedite the process.

The government has not specified the main beneficiary or investor of the metallurgical cluster project; it could potentially be a state-owned company, according to an industry analyst.

China in mind

The analyst speculated that both the copper and DRI production are primarily intended for the Chinese market, as these projects add excessive capacities in Russia.

He and another analyst suggested that the smelter would utilize local copper deposits, several of which exist in the Southern Urals, including those already being mined, such as by Yuzhuralmed.

Likewise, the cluster's planned plants could be built on the sites and using equipment of some existing but low-demand enterprises, such as Rezhnickel (a former nickel matte producer inactive since 2017) and Yuzhuralnickel (another nickel ore processor that has been mothballed since 2012), located in Sverdlovsk and Orenburg oblasts, respectively.

Russian mining and steel company Mechel, which owns Yuzhuralnickel, has put the idled plant up for sale.