Boston, MA -- (ReleaseWire) -- 09/27/2012 -- BMI's Russia Metals Report for Q3 2012 analyses the possibility that Russia's metals sector will face slow growth in 2012 due to the eurozone crisis dragging on and metals prices weakening. We expect production of key metals to remain modest with company investment plans focusing on improving processing plant efficiency and reducing costs rather than building new plants or expanding production capacity. Despite the weak growth, Russia will remain one of the world's largest producers of key base and industrial metals such as nickel, steel and aluminium.
Russian steel production will rise 3.3% in 2012 according to BMI's forecasts, with the sector weighed down by falling steel prices and global oversupply in the steel market. With sector participants operating at relatively high capacity utilisation, we expect the key driver of this growth will be improvements to efficiency rather than expansions or building new processing plants. Similarly, global demand growth is expected to slow as construction activity in China declines and the eurozone economies remain extremely weak.
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Novolipetsk Steel (NLMK) is planning US$1.7bn in capital expenditure in 2012 in its drive towards increasing production capacity to over 15million tonnes per annum (mn tpa) from 12mn tpa in 2011 with a target of 17.5mn tpa by 2014. Meanwhile, Magnitogorsk Iron and Steel Works (MMK) plans to increase crude steel production by 60% between 2010 and 2017 to 18.5mn tonnes (mnt). In 2012, it plans to increase its crude steel output by 7-10%, producing 14.3mnt, compared with a target of 13mnt for 2011. That said, we recognise the potential for these expansion projects to be delayed or idled as companies wait for more favourable economic conditions.
BMI forecasts nickel production to rise by an average of 1.1% a year between 2012 and 2016 as the major Russian producer Norilsk Nickel invests in operational improvements. Russia is one of the world's largest nickel producers and exports primarily to European countries. We expect the global nickel market to remain oversupplied in the coming years as global demand for stainless steel moderates. Falling costs and the substitution of nickel pig iron are key factors in determining global nickel prices and consumption patterns.
Oligopolies To Remain In Place
Russian metals output is heavily consolidated within each metal produced, as restrictive foreign ownership rights and established oligopolies prevent foreign competition. Within nickel production, Norilsk Nickel is the primary producer and also a major mining company. Its vertical integration across mining and refining capacity will allow it to remain the largest nickel producer in Russia for the foreseeable future. Similarly, steel and aluminium production are consolidated among just a few producers. We do not expect the metals sector to diversify significantly over our forecast period.
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