Ron, I have long believed that a cataclismic event in Russia is unavoidable..indeed a collapse of ruble and Russian default was entirely predictable (surely it was to Russian mafia/politicians, that was openly transferring IMF money to Swiss accounts) Where I disagree
with you is in the area of consequences of political unrest that is brewing in Russia. For starters that would lead to drastic cut-down of oil/metals flow out of Russia with instant commodities/oil inflation, what are the chance for USA/World markets to move forward in such an uncertain enviroment? I would suggest that defensive stocks are indeed
"defence", Aluminum, nickel, oil (Russian exports)....As for Dollar/Euro , it is likely that USA would have to underwrite as usual a lion portion of Russian related "expenses", where I agree that they are going-up (substantially in 1999 or else...:(
Russia '99 base metal sales seen stable, price low
05:14 a.m. Dec 31, 1998 Eastern
By Sebastian Alison
MOSCOW, Dec 31 (Reuters) - Russian base metals exports will stay steady to
marginally higher next year as exporters look to boost hard currency revenues, and as
a result prices will remain depressed in an oversupplied market, analysts said this
week.
''I would expect exporters to maintain export levels or increase them because of their
current increased profitability,'' said analyst Tatyana Nikolskaya at Pioneer Securities
in Moscow.
''It would be stupid to cut exports right now when the rouble is depreciating, and as
the depreciation is expected to continue to the end of next year, they will probably be
strong until then,'' she added.
Exports of metals and the other key commodities, oil and gas, form the backbone of
Russia's hard currency earnings. Sales of these raw materials usually account for 70
percent of export revenues, although low oil prices are now shifting the balance.
But metals prices are also low. This is forcing Russian exporters to keep sales as high
as possible to maintain revenues, even though the high volume of supplies, coupled
with poor demand, especially from East Asia, is depressing prices further.
Russian aluminium exports are a little over three percent up this year from 1997. Trade
ministry data published last week showed exports in January to October at 2.3 million
tonnes, from 2.2 million in the same period last year.
''They are working to increase capacity,'' Martin Squires, head of research at Rudolf
Wolff in London, said. ''Aluminium production has been increasing steadily over the
last two years.''
He added that Russia was a high-cost producer, with extremely high employment
costs as many plants were responsible for a range of social provisions outside the
scope of western employers.
Costs were also high because finished metals had to be transported thousands of
kilometres to markets from smelters in Siberia, and because many production
processes were antiquated.
But despite high costs, he expected Russia to keep exports up because of its urgent
need for cash. Russia is mired in economic crisis and all exports have become more
profitable since the effective devaluation of the rouble in August.
Squires added that there were two big unknown factors which might affect the
apparent predictability of Russian supply.
The first was political instability. Since the economic turmoil began in August, some
regional politicians have introduced economic measures independently of the centre.
These include Alexander Lebed, governor of the Krasnoyarsk region where several of
the biggest aluminium plants are located, and Squires said the market was uncertain
about how political decisions taken locally might affect supply.
The other main uncertainty concerned the size of Russian stocks, and especially stocks
of scrap.
''There is a lot of scrap in Russia, and since devaluation, even more so than before,''
Squires said. ''It's very difficult to gauge how much they've got. Some say 10 years'
worth.''
He added that Russia had some 13 percent of the global aluminium market, over 20
percent of nickel and some four percent of copper. ''If they were to come out with
stocks for some reason, it would have a significant impact on the market.''
Russian equities analyst Alexei Kapkin of Dresdner Kleinwort Benson said that by
contrast with aluminium, nickel exports were unlikely to rise next year because of a
lack of investment at the country's largest producer, Norilsk Nickel (NKEL.RTS).
''To increase exports they need to increase production. To increase production they
need to upgrade their equipment, and for this they need to raise a lot of money. At the
moment they don't have enough sources of money to upgrade,'' he said.
Norilsk has a five-year plan to spend $1.7 billion on upgrading, but in 1998 it raised
just $80 million, Kapkin said. As a result, Norilsk would concentrate next year on
keeping exports at 1997 levels rather than trying to raise them.
Nickel exports in the first 10 months of this year were 172.9 million tonnes, trade
ministry data showed, off 3.4 percent from the 179 million tonnes in the same period in
1997.
The outlook for metals prices is not encouraging for Russia's depleted state coffers.
Squires said that investment made in plants in Latin America, Australia and North
America when prices were higher and the demand outlook for Asia was good meant
even more production would come onstream next year.
((Moscow Newsroom, +7095 941-8520 moscow.newsroom+reuters.com))
Copyright 1998 Reuters Limited. |
