The word “import substitution” has firmly entered the lexicon of Russian politicians and officials. Since 2014, when the first economic sanctions began to be imposed against Russia in connection with the return of Crimea to Russia. Eight years ago, a number of programs were adopted to develop the production of import-substituting products.
The priority areas of import substitution were agriculture and food production, information technology, engineering, as well as the production of goods prohibited by the West from being imported into Russia. Neither in the speeches of officials, nor in the documents on import substitution in the first years, such an area of import substitution as the extraction of natural resources was almost never mentioned. Apparently, there is a strong opinion in the public mind that Russia is a country in the depths of which there is the whole table Mendeleev and that we not only extract all the vital natural resources, but also export them. Apparently, such an idea was formed in Soviet times. After the collapse of the USSR, many mineral deposits ended up outside the Russian Federation, on the territories of neighboring countries.
For some reason, the excess production of natural gas and oil in the mind was extrapolated to minerals representing the entire periodic table. But gradually the real picture of Russia’s provision with some resources began to clear up and the illusions of complete resource provision began to disappear. The situation with strategic resources is especially difficult.
The list of the main types of strategic mineral raw materials was approved by the order of the Government of the Russian Federation of January 16, 1996. Since then, its composition has remained the same. Strategic raw materials in Russia include: oil, natural gas, uranium, manganese, chromium, titanium, bauxite, copper, nickel, lead, molybdenum, tungsten, tin, zirconium, tantalum, niobium, cobalt, scandium, beryllium, antimony, lithium, germanium, rhenium, rare elements of the yttrium group, gold, silver, platinoids, diamonds and high-purity quartz raw materials.
The actual situation with each of these resources currently differs significantly.
First, in terms of explored reserves.
Secondly, in terms of production.
Thirdly, in terms of coverage of domestic needs by this extraction.
In July last year, the Accounts Chamber published a report on the results of an audit of the effectiveness of the management of the state subsoil fund for the period 2018-2020. The picture that emerged is, frankly, unpleasant. According to the conclusions of the Accounts Chamber, the potential of Russian subsoil is used very poorly. Of the more than 280 types of minerals identified in the depths of the Russian Federation (indeed, almost the entire periodic table) of minerals, about a third is mined.
During this three-year period, Russia imported more than a third of the types of resources from the list of strategic types of mineral raw materials and over 60% of scarce types of minerals. The situation with such strategic species as manganese, chromium, titanium and lithium turned out to be the most critical. For these four types, Russian needs were covered by imports by 100%.
For other strategic types, import coverage was also high. For example, for zirconium – 87.2%. In addition, Russia covers almost 50% of the demand for copper with imports; two thirds – in bauxites; 100% dependent on foreign supplies of iodine, and also purchases significant amounts of fluorspar (95%), bentonites for foundry production (89.6%), kaolin (68.3%) abroad. These types of raw materials “have a wide range of applications and are used in the metallurgical, chemical, nuclear, medical and other industries,” according to the report of the Accounts Chamber.
Despite the rather weak level of development of the manufacturing industry in Russia, domestic demand for a number of minerals is very significant. Resources are used to meet the needs of the ferrous and non-ferrous metallurgy, aerospace, nuclear energy, chemical industry and medicine industries. The sanctions that have been imposed against Russia until recently bypassed the supply of strategically important and other scarce natural resources to our country.
The likelihood of imposing restrictions and bans on the supply of critical resources is increasing dramatically. There is an acute issue of adjusting the priorities for the development of the extractive industry: it is probably necessary to reduce the activity in the extraction of those natural resources that are exported (first of all, we are talking about oil and gas) and pay more attention to “critical” resources. For some of these “critical” resources, it is necessary to increase (or create from scratch) production; on others, additionally carry out exploration work and increase the amount of explored reserves.
For a number of “critical” resources, the structure of their use should be changed. Titanium is a prime example. As noted above, Russia imports 100% of titanium raw materials. It is used in Russia to produce titanium semi-finished products (titanium sponge, etc.), high-quality alloys and rolled metal, which are necessary in civil and military aircraft construction; also titanium dioxide (used in the paint and varnish industry, the production of plastics, laminated and refractory paper, etc.). The aerospace industry absorbs almost 90% of the production of the Russian titanium industry.
Most of the titanium products are exported (70% last year). In 2021, titanium exports from Russia amounted to 14.6 thousand tons. It is noteworthy that the supply of titanium from Russia to Germany and the Netherlands decreased significantly last year, while in the United States it doubled. But at present, the American aircraft manufacturer Boeing, the main foreign consumer of Russian titanium, has announced an indefinite suspension of purchases of metal from Russia.
Firstly, he has a fairly solid supply of metal.
Secondly, he began an active search for alternative sources.
As for the European Union, so far there have been no official statements from Brussels or individual member countries about the refusal to import Russian titanium products. True, experts do not exclude that a titanium embargo may be introduced in the next EU sanctions packages (Brussels has already put into effect five packages of sanctions; it is known that the sixth is already being prepared).
Russia also needs a titanium maneuver. Since it is necessary to develop the import substitution of aviation equipment, the metal should be reoriented from export to the domestic aviation industry. At first, it is necessary to play it safe in the field of titanium raw material imports. According to the above-mentioned report of the Accounts Chamber, for the period 2018-2020. almost 83% of Russia’s raw materials needs for titanium raw materials were covered by supplies from Ukraine.
Vietnam was the second supplier. We do not know how the military situation in Ukraine will develop in the near future and how it will affect the production and supply of titanium raw materials to Russia. It would be necessary to secure an agreement with Vietnam on additional deliveries of titanium raw materials.
By the way, Russia has the world’s second largest reserves of titanium after China. The mineral resource base of titanium in Russia is made up of 20 deposits (of which 11 are primary and 9 are alluvial). A paradoxical situation is emerging: the Russian Federation accounts for 15% of the world’s titanium reserves, and Ukraine – only 3%; moreover, it is the latter that has so far covered most of the demand for titanium raw materials. The strategic direction for the development of the titanium industry is to develop the production of titanium raw materials in Russia itself.
At the end of last year, the Ministry of Natural Resources and Rosnedra prepared a report “On the state and use of mineral resources of the Russian Federation in 2020”. It specifically noted the critical situation with titanium: “titanium belongs to the group of scarce minerals, the domestic consumption of which is largely provided by forced imports.”
The report also states that “practically all Russian enterprises using titanium raw materials import it”, which, however, “does not prevent the country from being one of the top three world producers of sponge titanium and being the largest producer of pigment titanium dioxide in Eastern Europe.” Yes, even last year it “didn’t interfere”, but now it will certainly interfere.
The information contained in the report gives some hope that six titanium deposits are being prepared for exploitation in Russia: one placer and five primary ones. With regard to the placer, a date has even been named: “The commissioning of the Tugan alluvial deposit in the Tomsk Region, planned for the end of 2021, will increase the use of domestic titanium raw materials by the Russian industry.”
On April 18, there was news in the media regarding Tugansky GOK: “… at the moment, construction and installation work has been completed at the processing plant, commissioning work has been carried out, and the production of zircon, titanium and rutile-leucoxene concentrates has already begun.”
In February of this year, literally a few days before the start of the sanctions war of the collective West against Russia, the Deputy Chairman of the Security Council drew attention to the problem of the state’s raw material import dependence Dmitry Medvedev. He noted that “we have large deposits of strategically important mineral raw materials, but their development, for economic reasons, is primarily unprofitable – either because of the poor quality of raw materials, or from problems with existing technologies, or with logistics, delivery of raw materials.”
He elaborated: “We have problems with the import of a large number of types of strategic mineral raw materials. Manganese and chromium, lithium, beryllium, rhenium are imported almost completely, titanium is almost completely, zirconium and many, many other types of such strategic raw materials. Everyone knows the largest suppliers: they are a number of neighboring countries.” Some of them “are not in the easiest relationship with our state,” Medvedev acknowledged.
I will concretize the last phrase of the Deputy Chairman of the Security Council, referring to the above-mentioned report of the Accounts Chamber. The key supplier countries on which Russian enterprises depend are Ukraine, Kazakhstan, Chile, China, Mongolia and South Africa.
Unfortunately, there is no information about whether any supplies of resources to Russia from Ukraine remain since the end of February. Most likely discontinued. Since Kyiv has officially announced its adherence to all anti-Russian sanctions of the collective West. And Ukraine appears on the Russian list of “unfriendly states.”
Although countries that are not included in the list of “unfriendly states” prevail among the suppliers of raw materials, they can impose restrictions on Russia at any time. Take Chile and Argentina for example. They do not appear on the mentioned list. Nevertheless, the authorities of these countries carefully informed the Russian side in April that they were stopping the supply of lithium raw materials to our country.
Experts know how much lithium is necessary for any economy, including the Russian one. As noted above, Russia has a 100% import dependence on lithium. According to the Russian Ministry of Industry and Trade, Bolivia remains the only channel for lithium supplies to our country. At the same time, Washington is exerting strong pressure on this Latin American country, seeking a complete lithium strangulation of Russia.
Ministry of Industry official Vladislav DemidovSpeaking last month in the Federation Council, he admitted: “In terms of lithium, the problem is actually already gigantic, because if there is a refusal to supply raw materials from Bolivia, in the same way, Chile and Argentina will not supply us with raw materials, then, to Unfortunately, we have nowhere to take lithium raw materials.”
It is urgent to develop a resource import substitution program for the Russian Federation and start its implementation.