the rules of economy cannot be defied...rather they can..for a price
overfishing...
FOCUS-Russia reels from overreliance on oil, metal
07:04 a.m. Apr 10, 1998 Eastern
By Mike Collett-White
MOSCOW, April 10 (Reuters) - Russia is in a commodity price crunch, with
slumping oil and metal values severely hitting a non-diversified economy
still heavily reliant on raw material exports for its wellbeing.
Prime Minister-designate Sergei Kiriyenko drew a grim picture of Russia
's finances in a speech to the State Duma lower house on Friday, and
outlined huge losses incurred from low oil and metal markets when the
country can least afford it.
He said two external factors were helping to bring the economy to its
knees, the first being the Asian crisis, which had pushed up the cost of
government borrowing.
''The second was the correction on the world markets in our main export
products oil, oil products, gas, and base metals,'' Kiriyenko said.
''The price question means 30-40 billion roubles ($5.0-$6.7 billion) in
lost income for the Russian economy, of which at least 10 billion has
been lost from the federal budget.''
Russia's ranking in the oil and commodity ratings is impressive.
It is by far the world's biggest natural gas producer and exporter,
producing 544 billion cubic metres (bcm) in 1997 and pumping over 200
bcm abroad.
And Russia is the world's third biggest oil producer at 6.1 million
barrels per day (bpd), and the fourth largest exporter at 2.5 million
bpd.
It has the global number one nickel producer in Norilsk Nickel
(NKEL.RTS), and leads the aluminium export table. Among the precious
metals, Russia accounts for 60 percent of the world's palladium needs
and a fifth of its platinum consumption.
Russia also produces significant volumes of gold, copper, coal, oil
products and minor metal cobalt.
The problem for Moscow is that oil, oil product and metal prices are
hovering not far above record lows.
Oil barons and metal magnates have looked to export markets as a key
source of hard currency during the post-Soviet financial turmoil,
pushing as much material as possible abroad to compensate for
non-payments and slumping demand at home.
But they have become victims of their own success.
Russian aluminium and nickel flooding the metal markets in recent years
have forced values sharply lower.
And while its influence on the world oil markets is less marked, it
relies on the black gold more than on any other commodity for export
earnings.
Oil export revenues last year fell to around $15 billion from $16
billion in 1996. In 1998 that level is likely to be much lower. Global
crude benchmark Brent averaged $19.30 a barrel in 1997. It is now worth
only $14.
The same is true for metals. Aluminium averaged $1,600 a tonne in 1997,
valuing Russian exports at around $4.3 billion. Prices are now under
$1,450.
Nickel averaged at about $6,900 last year, meaning Russia earned roughly
$1.5 billion. Values were below $5,400 on the London Metal Exchange on
Friday.
Kiriyenko was aware that the worst of the commodity price slump impact
was yet to come.
''We still have not felt all of these difficulties. We will feel them in
the second half of this year, but the process is taking part today.''
The response among key exporters to the crisis has been to consider
cutting exports, taking Western markets by surprise.
The government agreed with top oil producers this week to cut exports by
61,000 bpd, while Norilsk has said it would consider reducing deliveries
to shore up values.
Norilsk and several giant aluminium smelters in Siberia are also looking
to develop domestic demand by mulling investments in industries
producing semi-finished and finished products.
The only market where Russia stands to benefit from commodity price
trends is precious metals, where palladium hit 18-year highs in March
and platinum recently reached a five-month peak.
But Russia has failed to deliver one ounce of either metal so far in
1998, and the gains from sales when it does deliver will only make a
small dent in huge losses on other markets.
((Moscow Newsroom, +7095 941-8520 moscow.newsroom+reuters.com))
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