Russia Warns of Trade ‘Volatility’ With China on Virus Risk

(Bloomberg) --

Russia said trade relations with China may be disrupted as a result of measures to fight the spread of the deadly new strain of coronavirus.

“Of course, we can’t rule out some volatility” in the flow of goods between Russia and its largest trading partner, Kremlin spokesman Dmitry Peskov told reporters on a conference call Tuesday. Even so, “we are convinced this situation won’t affect the very solid fundamentals in our bilateral relations, and the trade and economic aspect in particular.”

Turnover in Russia-China trade reached $111 billion last year. Russia introduced restrictions on air travel between the two countries on Tuesday as a defense against the spread of coronavirus, and last week closed its 4,209-kilometer (2,615 miles) land border with China to passenger traffic, though goods continue to flow. Fuel accounts for almost two-thirds of Russia’s exports to its giant neighbor, while oil demand in China is said to have plunged as much as 20% because of the virus outbreak.

The situation may affect the market for fertilizers, particularly phosphate and urea, Jason Miner, senior global chemicals analyst at Bloomberg Intelligence said by email. China is a major exporter of both groups of fertilizers with production located in the areas most affected by the virus.

Some additional volumes of the nutrients will be removed from the market after China extended its New Year holiday over the outbreak. “Urea had the clearest positive price momentum” last week, Miner said. Phosphate nutrient prices in Brazil, one of the largest consumers outside Asia, grew 12% in January, after falling since Sept 2018.

Shipments of nutrients by rail to China from Russian potash producer Uralkali haven’t been affected so far.

While it’s still too early to say, “the situation with the virus can be a very significant factor” affecting the steel industry, Severstal Chief Financial Office Alexey Kulichenko said on Jan. 31 conference call.

If China’s problems with coronavirus continue through the end of February, cross-border ecommerce may lose up to $100 million over a month, said Fedor Virin, partner at researcher Data Insight.

Price Increases

In Russia’s Far East region, consumers are starting to notice price increases for fruit and vegetables imported from China as well as some supply shortages.

“Cheap products from China have either disappeared or become more expensive,” said Vyacheslav Korenov, 53, who lives in Khabarovsk, a city that’s closer to Beijing than to Moscow. Tomatoes cost as much as 200 rubles per kilo ($3) compared with 100-150 rubles previously, he said.

In Blagoveshchensk, which borders China on the Amur river, Chinese fruit and vegetables have “disappeared” from stores and prices of produce from other countries have increased, according to Elena Vishnyakova, a resident of the city. Still, while many residents are wearing face masks including children at schools, “there is no panic,” she said.

Yury Trutnev, the presidential envoy to Russia’s Far East, ordered government agencies to take measures against unjustified increases in food prices, according to a statement from his office Tuesday.

Russia’s second-largest retailer, Magnit, said in a statement Monday that it’s suspending fruit and vegetable shipments from China because of the coronavirus threat and complications in logistics. Chinese tomatoes, peppers, tangerines, grapes and pomelo accounted for about 3% of Magnit’s fruit and vegetable sales last year.

The country’s biggest food retailer, X5, also said in an email that it’s looking at alternative suppliers to replace Chinese goods, though they account for “significantly less” than 1% of the company’s direct imports.

©2020 Bloomberg L.P.

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