Financial Times: Analysts see sharp falls in metal supplies
September 2. By Kenneth Gooding, Mining Correspondent
Supplies of aluminium, copper and nickel could be cut back significantly at a time when global stocks are relatively low because of Russia's financial meltdown, analysts suggest. They dismiss the idea that the collapse of the rouble will encourage big increases in exports of these metals. They say Russia has little stock and is already selling to western markets nearly as much as it produces.
There could also be long-term, debilitating effects on the mining and metals processing industry. Tony Warwick-Ching at Flemings Global Mining Group suggested Russian mines and plants, cut off from foreign investment for refurbishment, might gradually collapse and their output fall, as happened in the Congo, Zambia and other countries deprived of foreign investment for long periods.
Many big investment projects in Russia are increasingly dependent on foreign expertise as well as finance. "With foreign direct investment shut off or reduced, the operations - some of which had begun to improve recently - will decay further, output potential will gradually decline and exports slide," said Mr Warwick-Ching
On the disruption to metal production or deliveries, Annemarie Gardner and Kenneth Gray, analysts at ABN Amro, said: "Uncertainty among western partners about the safety of transactions or the continuity of deliveries could in extreme conditions lead to a serious credit crunch and production problems.
"Given the very low level of metal and steadily falling inventories in the west, any unexpected supply disruptions will lead directly to shortages of metals."
In a special report, the ABN Amro analysts said the Russian Federation accounts for 23 per cent of global nickel production, 13 per cent of aluminium and 4 per cent of copper output. They suggested that Norilsk, which produces most of Russia's nickel and copper, could only increase output after substantial capital expenditure. "Norilsk's competitors, Uralectronomed and Uralnickel, are not major producers or exporters and could well go bankrupt in the present environment," they said.
Even if Russia's domestic aluminium demand halved, the impact on global markets would not be dramatic.
"We believe the economic crisis will probably cap the rate at which aluminium smelters can produce. The smelters rely on imported raw materials which may face cross-border transaction problems because of the instability. Also, the smelters will have more difficulty raising cash for increased working capital requirements," they said.
Mr Warwick-Ching suggested there might be increased exports of scrap, which could be a problem for copper and nickel. The ABN Amro analysts argued, however, that low metal prices have reduced the attractiveness of scrap collection, and the cost of collection in Russia has risen substantially because most scrap arriving in European markets is brought from the Urals. "This means higher transport costs at a time when margins are already negative," they said in their report.
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