China's crackdown on North Korea over UN sanctions starts to pinch

Trucks crossing the Friendship Bridge from the Chinese border city of Dandong to North Korea's Sinuiju over the Yalu river.
Trucks crossing the Friendship Bridge from the Chinese border city of Dandong to North Korea's Sinuiju over the Yalu river. PHOTO: AFP

BEIJING (NYTIMES/REUTERS) - Trucks packed with seafood were backed up, bumper to bumper, at the Chinese border with North Korea.

Protesters carried red banners demanding compensation.

And Chinese businessmen who have been making big money from North Korean crabs, shrimp and squid were furious.

United Nations sanctions banning the import of North Korean seafood started to bite on Wednesday (Aug 16), two days after China's Commerce Ministry announced it would enforce the new rules passed by the UN Security Council as punishment for the North's nuclear and missile tests.

The crackdown came as US President Donald Trump offered some rare words of praise for North Korea's leader Kim Jong Un, making an apparent reference to the country's decision to wait "a little more" before acting on plans to launch ballistic missiles towards Guam, a US territory.

The Trump administration had been pushing China to tighten its enforcement of the UN sanctions, and North Korea's export of seafood is a decent, if not spectacular, source of cash for its government.

By curtailing the trade, China, which has been criticised for not properly enforcing earlier sanctions, is obeying the intent of the latest sanctions resolution but harming its own businessmen.

"I think it is very likely that I need to return my truckload of seafood back to North Korea - and what's worse, they won't give my money back," Zhang Xuebai, a wholesale trader, said in a telephone interview. "I will probably lose about US$45,000 (S$62,000). For other businessmen who have more goods stuck there, they can lose $150,000."

In all, North Korea earned US$196 million from seafood exports last year, with almost all of that revenue coming from China, the Korea Trade Investment Promotion Agency said.

The ban on seafood, a highly visible export that goes almost directly to consumers, is probably one of the easiest to enforce.

North Korean shellfish has grown in popularity in China over the past few years. Big hotels and banquet centres buy the crab, shrimp and other delicacies because cheap North Korean labour makes for competitive prices.

Sanctions on North Korea have also spurred concerns about tightness in the physical lead concentrate market in China, the world’s top miner and producer, extending a months-long rally in prices for the heavy metal, traders and analysts said.

The UN Security Council unanimously passed a resolution on Aug 6 banning North Korea’s exports of coal, iron, iron ore, lead, lead ore and seafood, in a bid to choke off a third of Pyongyang’s US$3 billion in annual export revenue.

While the North Korea volumes are a small portion of the 10-million-tonne global lead market, the removal of China’s No. 2 ore and concentrate supplier has forced some smelters like Haicheng Chengxin to find alternative domestic sources.

“If they are fully and strictly implemented, (the sanctions) would further tighten an already tight Chinese lead concentrate market,” said Ivan Szpakowski, Chief Investment Officer of Academia Capital, a US-based emerging markets and commodities-focused hedge fund.

Physical lead prices PB-1-CCNMM have risen 3 per cent since the news of the sanctions, trading at 19,400 yuan per tonne on Wednesday (Aug 16), highest since mid-February.

Prices are up 21 per cent since the beginning of June.  The most-active lead futures on the Shanghai Futures Exchange have risen 3.5 per cent since the sanctions.

News of the crackdown on North Korea added to existing supply concerns as lead mines in Sichuan have been going into maintenance ahead of environmental inspections across the province over the past two weeks.

Located just 230 km away from the North Korean border, smelter Haicheng Chengxin has increased purchases from Inner Mongolia, a major mining hub to its west, said a company executive who declined to be named.  

Before the sanctions, Haicheng Chengxin bought between 6,000 and 8,000 tonnes of concentrate each month from North Korea through traders, the executive said.

That’s the majority of China’s average monthly lead concentrate imports this year from North Korea, data shows.

Haicheng Chengxin has smelting capacity of about 100,000 tonnes of lead each year.  The company did not respond to requests for official comment.  

Antaike said they reckon China’s lead concentrate supplies are sufficient for now even though the global market is in a deep deficit, and smelters in Inner Mongolia, Hebei, and the north-eastern region of the country will be pushed to buy more raw material domestically.  

North Korean lead concentrates are typically lower grade, containing less lead than other imports.  In June, arrivals of lead concentrates sold for around US$800 per tonne, with almost half the volumes from top shipper Russia.