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Nonferrous metallurgy in secret portfolio
January, a traditional time for the State Statistical Services to publish its standard report on production achievements of Russian manufacturers for the preceding year, once again saw lacking data on ferrous metal production. Blank records opposite nonferrous metals are officially explained by “the state security requirements”, as contemporary defence technologies are, for the main part, rely on nonferrous metals, and the production data should be protected against a hostile leakage.
Otherwise, it is a well-known fact that the armaments industry looks like having one foot in the grave and has virtually idled for decades, so far. Military consumption does not exceed 1% of domestic nonferrous metal output, and the remnants of the war industry predominantly work for exports.
On the other hand, in strict accordance with the Russian Law on Securities, issuers shall quarterly release information on their financial and economic activities. And, because all leading nonferrous smelters issue securities, they are obliged to publish the relating data and do that.
As a result, we arrive at a paradox: with no official statistics in the view, we do have data on a relative growth. At the same time, figures on volumes can be recovered from manufacturers’ reports and the customs data.
Copper production
The red metal has almost trebled its price in the recent years. Its market, highly speculative, has turned into the one hard to predict. On top of that, manufacturers and traders have fallen back into a shadow of vague predictability. No surprise, concerns have been arising regarding possible shrinks on the unreasonably costly market.
Then, against this background, what is Russia’s contribution to copper production and consumption?
There are four key copper smelters in Russia: "Norilsky Nickel", UGMK’s UrakElectroMed, Kishtimsky Copper Electrolytic Works Novgorodsky Metal Works (belonging to “Russian Copper Company”).
NorNickel is a leader in terms of output (50% of all domestically produced copper). In 2005 the smelter increased output just by 1.1% from the previous year, which is obviously not a very inspiring pace and almost flat with that in 2003, and below 2002. UralElectroMed is persistently chasing the leader, narrowing the gap between them. The third biggest player in the sector – RMK – is also boosting production (+4% last year), covering up to 13.3% of the Russian copper market.
Table below depict the “alignment of forces” on the copper market in the recent years.
Drawing 1
Based on data collected from the manufacturers, a growth of copper production came to about 2% last year. Notwithstanding that, the State Statistical Services insist the rise was up to 9%. We wish we knew what an enterprise it was to help build the hike? Otherwise, the amusing statistics have started circulating around the globe. Highly respected International Copper Study Group (ICSG) sticks the same figure in its report of March 16. Interestingly, some earlier ICSG had given its view on a coming decline of production in the CIS countries, including Russia. With all that, ICSG published quite mysterious figures:
Drawing 2
Judging from ICSG’s figures, copper output in Kazakhstan amounted 419 thd. t in 2005 and 443 thd. t in 2004, then, logically, the figure for Russia would be next to nothing.
By the way, another trustworthy resource - US Geological Survey – apparently desponded in taking accounts of Russian copper performance data. The third year in row, it states the same figure for Russian copper output - 675 thd. t.
Copper production & export balance
Apparent domestic consumption, derived from a balance of production and exports, is also hopelessly distorted. ICSG underestimated the figures for Russia and the CIS nearly 10 times.
Even domestic manufactures fell victims to the anomalous statistics. For instance, “UralElectroMed” in its reports for 2003-04 followed up on too high performance for “NorNickel”: 477 thd. t for 2004, whereas the smelter itself reported just 447 thd. t.
Anyway, actually, exports of refined copper from Russia have been gradually declining in the recent years. Partially, thanks to UGMK, who expanded production of wire rod (at its “Katur-Invest”) and certain types of rolled products.
Among Russian consumers of refined copper are 10 OTsM works and 11 cable manufacturers, many of them are upgrading their production scales. On the positive side, is a rise in exports of domestically produced higher value added copper production.
Turning back to “secret” copper statistics, it seems to have created broad confusion. Even with an excellent state of the market, the level of external investments is on its minimum. Exploration of new deposits has almost halted; the Udokan deposit related project is being repeatedly postponed.
Aluminium
Russian smelters – SUAL and RUSAL – are bearing the palm of the largest aluminium producers in the world. Consolidation in the industry completed in 2003, and the Russian market does not know other independent manufacturers of aluminium. After years of keeping their performance data closed, the two have become increasingly active on overseas financial markets and started publishing their figures.
In 2005 the leaders boosted output of aluminium: RUSAL – by 1.6%, SUAL – by 8.8% from 2004. All the data is pretty clear and accessible from official resources.
Drawing 3
Combined reports from manufacturers indicate the annual production growth came to 3.46% in 2005. The State Statistical Services put the growth at 3.1%, from 2004. It may be up to you to decide who disfigured the reality.
As usual, western analysts contradict their counterparts in Russia. According to USGS, in 2004 Russia manufactured 3590 thd. t of aluminum, in 2005ã. – 3650 thd. t, i.e. almost 150 thd. t under statistics showed in Russia; the annual growth declared by the West is 1,7%, while the Russian one is double the percentage.
International Aluminium Institute (IAI) presenting monthly and annual reviews on Central and Eastern Europe, including Russia that holds 75% of the regional output, chronically understates the data (at the expense of Russia?) by about 0.35 mln. t a year.
Back to Russian statistical sources, a report by the State Customs Committee discrepantly states that in 2004-05 exports of aluminium from Russia equalled or surpassed 100% of its production! So, no aluminium could be found on the Russian market. Otherwise, domestic consumption is far more than being minute, with large consumers in machine-building, construction electric equipment industries and among package manufacturers. RUSAL alone has reported domestic supplies at 0,5 mln. t of aluminium. Different sources estimate domestic consumption within a range from 0,55 to 0,96 mln. t of aluminium in 2005.
Nickel
If Russia’s aluminium and copper markets are characterized by a certain grade of competition, the nickel sector is entirely monopolized by “Norilsky Nickel” (85% of total production).
The closest rival – Mechel’s “YuzhUralNickel” – produces 20 times less. Another two manufacturers - ZAO «RekhNickel» and ÎÀÎ «UfaLeiNickel», both owned by UK “Industrial Metallurgical Holding”. In the past Rezhsky’s operation severely lacked stability; its productions were staying idly from October 2001 to May 2002 and September 2004 to April 2005. Precise statistics on the two is not available, which does not make the difference, as they do not have the leading on the market.
Drawing 4
A rise in output of nickel in 2005 was, the State Statistical Services say, 2.7% - the first and nearly precise match for the estimate done by the manufacturers – 2.5%. But USGS fully ignored the figure; as well as in the copper case, the expert view supplier insists production figures in Russia do not change, and sets the level at 315 thd. t per annum.
The state statistic resource put the national nickel consumption at about 20 thd. t. By the by, the Energy Ministry pointed out a 80.5% jump in 2005, following a steep decline in the previous year.
Conclusions
The “secrecy regime” in the nonferrous industry’s performance has turned into a kind of anachronism long ago. Key domestic manufacturers, as well as the State Customs Committee, have been openly publishing all the basic information on the subject.
The “urge for secrecy” may be explained by the ore base rapidly running out and parched investing into geological exploration, mining industry and nonferrous metallurgy. Better to keep everything “secret” – by design…
When back in 1996 the Russian premier – Viktor Chernomirdin - decided what to relate to “strategic mineral ore materials”, the litany of secret materials embraced almost all metals. As usual, the premier “wanted for the best, and you know the rest…”
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