By Polina Devitt and Pratima Desai
LONDON (Reuters) - Russian firms have boosted zinc metal production over the past month to benefit from rising state demand and reduce reliance on China as a destination for material, two sources familiar with the matter told Reuters.
Russia's output of zinc used to galvanise steel is a fraction of the global total, but it will add to tightness in the global zinc concentrate market as seen in China's imports.
Russia's commodity exports to China soared after Western sanctions were imposed on Moscow for its invasion of Ukraine in Feb. 2022.
However, ever-widening U.S. sanctions, including those on the only Russian bank branch in China, have narrowed options for making payments to Russian firms, crucial for state revenues.
Sanctions-hit Russian groups "UMMC and RCC have increased production of refined metal zinc itself, as zinc concentrate exports to China dropped due to problems with timely arrival of payments and discounts which Chinese buyers request for on-time payments," a source familiar with the matter said.
Russian state orders for finished products are up, while for remaining exports to China, fewer shipments of refined metal mean fewer payment transactions, the source added.
UMMC and RCC, which mine zinc in Russia, did not respond to a Reuters' request for comment.
Russia's production of finished metals products, which include weapons and ammunition, jumped 56% in May.
The second source said the Chelyabinsk Zinc Plant, the only producer of the metal in Russia, was quickly ramping up output after a decline in recent years following reconstruction work.
The upgrade at the plant, owned by UMMC, has added about 15% to its production capacity, the first source said.
Consultancy CRU expects the plant's output to rise to 212,000 metric tons in 2025 from 209,000 tons this year, or 1.5% of the 2024 global total, estimated at 14.0 million tons.
Another smelter, the New Verkhny Ufaley smelter owned by a local firm, Polimet Engineering, is expected to start producing in the third quarter. CRU expects it to produce 40,000 tons this year and 80,000 tons in 2025.
By 2027, Russia will be able to produce 322,000 tons of refined zinc from the Chelyabinsk and Verkhny Ufaley smelters, up from last year's 205,000 tons, CRU analyst Tom Rutland said.