Russian metal executives have spring in their step, as commodity prices continue to rise
Over the past two years, steel and nickel prices have risen roughly 60 per cent, while aluminium is up 40 per cent. Gold has risen around 12 per cent. Over the same period, Russia’s key interest rate has fallen from 11 per cent to 7.5 per cent. That boom, and rising demand, carried Vladimir Lisin, owner of NLMK, Russia’s largest steelmaker, to the top of the Forbes 2018 Russian rich list, just ahead of Alexei Mordashov, Severstal’s owner. Two other metal tycoons were in the top ten, alongside the country’s oil and gas barons. “In 2017, steel consumption in Russia increased by 5 per cent,” said Alexander Shevelev, Severstal’s chief executive, who expects 3 per cent to 4 per cent growth this year. “Strong market conditions and internal efficiency programmes” allowed the company to record what Mr Shevelev said was an industry leading and company record ebitda margin of 32.8 per cent. “Back in 2015, the market environment was completely different from what we see today,” adds Rusal, Russia’s largest aluminium producer. “In 2017, alongside a positive macro backdrop, [we] delivered robust results. We also significantly improved our debt profile by actively pursuing capital markets opportunities and engaging with our strategic financial partners. Overall, the company is in good shape for 2018.” Share this graphic Rusal was forced to restructure $17bn worth of debt in 2009 — Russia’s largest corporate restructuring in what became a symbol of the industry’s woes. It has spent the years since shutting down inefficient production capacity, cutting costs and making further tweaks to its repayment schedule. It increased dividends by 20 per cent in 2017, and is ramping up spending on new projects this year. It is a similar story at Polyus and Polymetal, the country’s top gold producers. Polyus late last year began drilling at its new Sukhoi Log project, one of the world’s largest undeveloped gold deposits, while Polymetal will start production from its flagship Kyzyl mine later this year.
Norilsk Nickel, one of the world’s largest nickel producers and the top palladium miner, plans to spend $2bn on capex this year and as much as $2.5bn in 2020 on modernising its Soviet-era smelters and a new platinum venture. “A favourable long-term outlook for our metals is underpinned by the increased adoption of electric vehicles, strong economic growth and higher environmental standards globally,” said Sergei Malyshev, the company’s chief financial officer. “We are investing throughout our value chain, from new high-margin mining projects to cleaner and more efficient downstream facilities.” But there are threats lurking. Domestically, a slowly strengthening rouble has steadily increased costs for the industry, which typically earns in dollars but pays out in local currency — and imports a large amount of its most expensive new technology and machinery. On top of that, rising political tension with the UK in recent weeks over the attack on the Russian double agent Sergei Skripal has raised the threat of new sanctions against Moscow, even as Washington considers whether to impose tougher restrictions on leading oligarchs. Share this graphic The main owners of Norilsk, Rusal, Polyus, Polymetal, Severstal and NLMK were all on the so-called Kremlin List released by the White House in January that officials say could form the basis of a roster of individuals to be targeted in future.