(Bloomberg) -- Kazakhstan’s Eurasian Resources Group is considering producing a feedstock for low-carbon steel production, after sanctions blocked its iron-ore shipments to Russia.

Luxembourg-registered ERG halted sales to its biggest customer, Magnitogorsk Iron & Steel Works PJSC, after the US imposed sanctions on the Russian company last year. That prompted ERG — 40% owned by the Kazakh state — to weigh building a hot briquetted iron plant to supply electric-arc furnaces making low-carbon steel.

“As iron ore can no longer be shipped to Russia,” we are seriously considering the project, Kazakhstan’s Deputy Prime Minister Serik Zhumangarin said in interview in Astana. 

ERG’s plan underlines how the war in Ukraine is changing traditional trade flows. The project will also challenge Russia’s Metalloinvest Holding, the largest producer of HBI, in which billionaire Alisher Usmanov is the biggest shareholder. The company has already been forced to refocus its sales toward Asian markets, including China, as sanctions and trading restrictions prevent exports to Europe.

The first $1 billion phase of ERG’s HBI plant, with an annual capacity of 2 million tons, could start operating in 2026, Serik Shakhazhanov, general director of the company’s Kazakhstan business, said in a separate interview. There is preliminary agreement with state-owned QazaqGas to supply the first phase with gas, while a second phase with same capacity may be ready by 2028, he said.

The new HBI plant could target the Chinese market, with ERG securing preliminary agreement for an offtake deal, Shakhazhanov said.

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