The production of metallurgy industry products and of finished metal products in January-September 2012 was 105.7 percent of the production level seen in January-September 2011. Steel production rose to 102.8 percent of last year’s level, and the manufacture of fabricated metal products increased to 114.3 percent.

With the exception of seasonal and calendar factors, the production of metal products and fabricated metal components in September 2012 compared to August 2012 was unchanged. In September 2012, metallurgical production and the production of finished metal products were at 97.8 percent of the production level for August.

Demand grew, as in the previous period, mainly due to the activity of the engineering enterprises. In October of this year, according to statistics of rail transportation, direct revenues from the sale of iron, steel bars, tubes, and semi-finished goods to locomotive, railway carriage, and car-building enterprises in Russia were 133.4 thousand tons, a figure that reflected an increase of 11.4 percent compared to the statistics for the previous month and of 0.1 percent compared to October of the previous year. In January-October 2012 the volume of purchases totaled 1.28 million tons, a 2.0 percent increase over the corresponding period of the previous year. That figure exceeded the output in pre-crisis years by an average of 50 percent. Compared to the performance for 2009 and 2010, this year’s production increased 151 percent and 20 percent respectively. The growth in purchases this year in relation to the previous year’s figures began in April and continued for six consecutive months.

The purchases of black metal in steel trading continued to increase in September 2012. According to the statistics of rail transportation, shipments (including those for exports) of iron bases by Russian trading companies were 974 thousand tons. Compared to the previous month, the volume was down by 5.4 percent; however, compared to September of the previous year, the volume increased by 7.3 percent. In January-September 2012, the volume of shipments amounted to 7.96 million tons, a 5.2 percent increase from the corresponding period of the previous year. Increases in purchasing activity this year relative to the previous year’s performance took place almost every month. The only exception was in March, when purchases lagged behind the results for the previous year by five percent. This year’s purchasing activity exceeded the activity seen in 2010 and 2009 by 26 percent and 1.7 times respectively.

Metal purchases by Russian construction materials plants still continue to fall, although this time the reduction is seasonal. In January-October of this year, according to the statistics of rail transportation, direct shipments (including imports) of ferrous metals to the enterprises for the manufacturing of reinforced concrete structures, as well as to construction components manufacturing facilities were 584.3 thousand tons. This figure is 0.8 percent lower than the one reported in the previous year. The growth in purchases this year relative to the previous year’s figure was observed every month, starting in April. The exception, however, was in August (–2.8 percent). Also, in the previous year, the purchasing activity that began at the start of the summer season significantly slowed down in September and October. Compared to August, purchasing activity was down 12.7 percent for the two months of 2011. This year, the reduction in supply was much smaller, at –5.6 percent.

The internal market allows Russian companies to increase metal production, but a significant increase in the financial performance is not expected. Prices of steel products since the beginning of 2012 did go down. Within the NLMK group, for example, weak demand in international markets has had a negative impact on pricing in Russia and the C.I.S. countries.

The prices for steel products are a bit behind the rates for gas, electricity, and rail transportation. Therefore, analysts expected the financial performance of the ferrous metallurgy sector to go down. To minimize losses, some Urals metallurgy companies decided to stop inefficient facilities. In October, the Zlatoust Metallurgical Works stopped one of the five-ton electric arc furnaces. It melted expensive steels, for which the demand from the defense industry declined. To minimize losses, the company decided to move the smelting of stainless steels to other facilities within the production complex, ensuring that they get a full load.

The Magnitogorsk Iron and Steel Works (MMK) is also preparing to adjust its strategy. As the general director of the holding Boris Dubrovsky stated, for the next year, production will be frozen at the level of 12 million tons. Additionally, MMK will not get new loans to improve its debt to EBIDTA ratio. According to analysts, the decision is related to a possible restructuring of the company’s debt in the amount of USD3.7 billion. The adjustment strategy has influenced the situation in the steel market, which is now deteriorating to be restored only in 2015.

According to experts and industry leaders, in 2013, Russia should expect tough competition, anti-dumping investigations, a decrease in exports of steel and in raw materials consumption. Besides, the Russian metallurgy industry is losing its traditional competitive advantages, which include, in particular, the low cost of energy and raw materials. Against the background of Russia’s WTO accession, steelmakers fear increased competition and dumping.

The slowdown of the industry forced manufacturers to ask for government support. The main argument of the steelmakers is that over the last 10 years about 1.2 trillion roubles has been invested in the modernization of the sector, with more than 695 billion roubles in the three post-crisis years, from 2008 to 2010. As a result, according to Russian Steel, from the beginning of the 2000s, the degree of wear and tear in the steel industry of the Russian Federation went down from 53.5 percent to 42.5 percent. A large number of tools aimed at modernizing the rolling facilities and the development of new products of high added value are available.

Tax incentives

The steelmakers have not been able to achieve any tax breaks after the introduction in January 2013 of a duty for mineral extraction (MET) in remote places. In late October, the Russian government asked the relevant ministries and the companies involved for a rationale of benefits for specific projects and for providing those estimates for the first quarter of next year. Experts point out that the benefits may still be available from early next year, as requested by the steelmakers. However, the majority of the companies’ projects are not yet sufficiently developed to provide accurate calculations. An analyst at Metropol Sergei Filchenkov believes that the law on tax breaks is most needed by companies with high debt loads, such as Mechel and Evraz. That the introduction of tax benefits may be delayed is not critical for other metallurgists, he said.

Production

According to Rosstat, 5.9 million tons of steel were produced in Russia in September of this year, the same as in July and August 2012, a level of production 9.26 percent higher than in September of the previous year. In January-September 2012, crude steel production totaled 53.4 million tons, increasing by five percent compared to the same period of the previous year. Iron output has not changed compared to the level registered in August, although in the annual comparison it increased by 5.4 percent. From January to September, 38.1 million tons of pig iron was produced, which is 6.6 percent more than in the first nine months of 2011.

The production of rolled products in September was 5.2 million tons, a figure that has not changed since August. In the annual comparison, rolled product production increased by 9.4 percent. The highest growth in the annual comparison in September was seen in the production of billets for rolled products for exports. In the month-to-month comparison, the production of hot-rolled sheets showed the best results. In January-September 2012, the production of rolled products totaled 46.8 million tons, which is six percent more than in January-September of the previous year.

The export volume of rolled stock in January-September 2012 decreased. The volume of exports of ferrous metals and the products made from ferrous metals decreased by 15.7 percent, including by 36.3 percent for iron. However, exports of semi-finished products of iron or non-alloy steel increased by three percent, and exports of flat rolled products of iron or non-alloy steel increased by 15.2 percent. Exports of ferrous alloys went up by 1.6 percent. According to the Federal Customs Service, Russia in September 2012 exported 625 thousand tons of alloyed steel flat  and rolled products, a figure that is 8.8 percent higher than the one reported in September 2011. Compared to the previous month, Russia’s supplies of steel abroad decreased by 9.2 percent in September. In general, in January-September of this year, the export of alloyed steel flat and rolled products from Russia decreased by 4.8 percent compared to the same period of the previous year to 5.55 million tons. With the exception of June and September, this year’s monthly shipments were lower than those in the previous year. As a result, the exports for the nine months fell to their lowest level since 2006.

Imports

According to the Federal Customs Service, Russia in January-September 2012 increased imports of ferrous metals by 10.4 percent to 4.748 million tons, compared to the same period of 2011. However, the imports of steel pipes decreased 2.3 times to 604.6 thousand tons in value terms in January-September 2012; the import of ferrous metals fell by 0.9 percent to USD4,672 billion; and the imports of steel pipes by 2.1 times to USD1.058 billion

According to the experts of the Steel Association, the volume of Russian imports of the main types of stainless steel products in September 2012 compared to August fell by 2.9 percent to 18,816 tons of long products. Imports on the whole decreased by 23.7 percent. Wire imports went down 57.6 percent, the imports of seamless pipes by 28.5 percent, and the imports of electrical components by 21.3 percent. The imports of flat products rose by 5.8 percent, and the imports of primary metal strips by more than eight times. Russia’s imports of stainless steel products mainly consisted of flat products, which accounted for 76.5 percent of total shipments (in August, the imports’ share was 70.2 percent), followed by long products at 9.6 percent (12.3 percent), seamless tubes at 5.7 percent (7.7 percent), welded tubes at 5.3 percent (6.5 percent), primary strips at 1.5 percent (0.2 percent), and wire at 1.4 percent (3.1 percent).

Stock market

The composite index of the Moscow market of ferrous metals in October began a new cycle of decline. On October 27, the index ended at 366.45 percentage points against 369.04 percentage points on September 30. In the 10 months of 2012, the index fell by 6.49 percentage points from 372.94 percentage points at the beginning of the year.

Prices

Prices for all types of steel fell in November, continuing the trend from October. In October, the prices on almost all products went down. The price for one ton of hot-rolled sheets dropped in November by 2.16 percent to 25.03 thousand roubles. The average price on November 25 was 24.885 thousand roubles per ton. Since the beginning of 2012 the price fell 6.4 percent. The price on cold rolled sheets also fell. As such, the average price for November fell by 0.6 percent to 27.7 thousand roubles per ton, down 11.8 percent since the beginning of the year. The average price of galvanized sheets fell by 1.02 percent to 36.1 thousand roubles per ton. Since the beginning of the year the price of galvanized sheets dropped 10.31 percent. The average price of rebar fell in November by 1.5 percent to 27.1 thousand roubles per ton. For the eleven months of the year, the price of rebar increased by 2.8 percent. The average price range in November slid down by 2.15 percent to 25.68 thousand roubles per ton. From the beginning of the year, the price range has shifted downward by 3.62 percent.

The cost of B1 beams was on average 35.6 thousand roubles per ton at the beginning of November. The price increased by 4.13 percent compared to the beginning of the year. As of November 25, the price of B1 beams was 35.53 roubles per ton.

The average price of electric-welded pipes fell in November by 1.01 percent to 33.84 roubles per ton. From the beginning of the year, an increase of 6.72 percent was registered for the prices for this product.

The average price of water and gas pipes went down in November relative to the prices in October by 1.54 percent, declining to 28,638 roubles per ton. The decline in the prices for water and gas supply pipes since the beginning of 2012 was 2.97 percent.

Prices on flat products on the Russian market in the recent months continued to decline slowly, following the drop in prices on flat products on the world metals market. The expansion of cheap Chinese production in September not only completely squeezed out Russian metal producers from the market of Southeast Asia, but also forced the Russian steelmakers to reduce export prices in the struggle to hold their ground in the Middle East. The Russian producers have lost another important market, namely Iran, where the crisis response against international sanctions led to a sharp devaluation of the national currency.

At the same time, domestic demand is rising. According to preliminary estimates, the apparent consumption of rolled steel in Russia has grown by an average of five percent. The growth in rolled sheet steel made with a special coating comprised a 20-percent share of the overall price increase in the rolled sheet steel segment. Cold-rolled products accounted for 10 percent of the cost increase. A 16-percent decrease in consumption was observed in rolled plate production. Consumption remained flat for the hot-rolled segment of products (+1.3 percent). Long products showed better performance, with growth in the demand for rebar at 16 percent, for wire rod at 7.1 percent, and for structural shapes and rails at 2 percent. The apparent consumption growth of 5 percent in Russia is significantly more than the 0.6 percent in the global market.

Expected trends

Industry specialists expect the market of rolled products to improve due to the increased demand from the construction industry. Many are hoping for the growth in demand in 2013, with the government’s supports for the construction sector, and the preparation for the Winter Olympic Games in Sochi, the 2013 Summer Universiade in Kazan, and the World Cup in 2018. These massive projects give builders and metallurgists reasons to believe that 2013 will be better for the construction industry than the current year.

In relation to the market for flat products, Russian national manufacturers foresee an increase in the share of deliveries of steel products to the domestic market through import substitution, although forecasts for domestic consumption of flat steel in Russia in 2013 are not as optimistic as for the consumption of rolled products.

Competition will intensify on the domestic rolled products market in the new year. In 2013, two Russian producers will compete for a share of the market in the supply of high-quality rails for the Russian Railways. The new rolling mill of Mechel at the Chelyabinsk Metallurgical Plant constructed in 2008 will produce up to 500 tons of the 100-meter thermo-strengthened rails for high-speed railways. Following the mill’s launch in 2013, Mechel will become the country’s only rival to Evraz, which currently provides 90 percent of the supply of rails in Russia.

In its turn, Evraz, plans in 2013 to complete the large-scale modernization of its rail production line at the company’s West Siberian plant and begin the production of 100-meter rails in the volume of 450 thousand tons per year. Thus, the two Russian metal giants already in the coming year may divide the market for 100-meter rails almost equally. In the absence of exports, Russian rail producers may begin to experience difficulties with surplus stock.

Exports

According to the Customs Service, the share of metals and metal products in the total value of exports to foreign countries in January-September 2012 amounted to 8.9 percent. From January to September 2011, the share of metals in overall exports stood at 9.2 percent. The value of exports of goods increased compared to January-September 2011 to 0.8 percent, and the physical quantity increased by 8.2 percent. The volume of exports of ferrous metals and products thereof increased by 8.1 percent, including by 12.3 percent in the ferroalloys segment, and by 25.5 percent in semi-finished products of iron or non-alloy steel. Copper export volumes increased by 95.9 percent, and the exports of nickel and aluminum by 46.1 percent and 7.8 percent respectively.

Pipe production

The production of steel pipes in September 2012 increased slightly compared to September of the previous year, but the monthly comparison has changed. The production of steel pipes in January-September 2012 decreased to 91.8 percent compared to January-September 2011, or 7,167 tons. Relative to August 2012 production amounted to 100.8 percent. The main cause for the low production performance in the steel pipes category in the reporting period is a significant reduction in the demand for large diameter pipes for the construction of oil and gas pipelines.

The production volumes of pipes categorized according to the method of their production and their intended use for January-September 2012 compared with January-September 2011 was as follows: drill pipe was at 29.7 thousand tons, or 105.6 percent of last year’s volume; pipe tubing was at 322.7 thousand tons, or 107.3 percent of last year’s volume; casing was at 622.2 thousand tons, or 116.7 percent of last year’s volume; seamless pipe was at 2,331.0 thousand tons, or 104.6 percent of last year’s volume; electric-diameter (SBD) pipe was at 1,847.8 thousand tons, or 69.9 percent of last year’s volume; electric (except SBD) pipe was at 2,819.5 thousand tons, or 105.1 percent of last year’s volume; and welded (non-electric) pipe was at 166.5 thousand tons, or 66.6 percent of last year’s volume.

The fall in oil prices this summer led to a reduction in costs for oil and gas producers, and this situation, in turn, caused a drop in the demand for pipes used in the construction of oil and gas pipelines and the corresponding fall in prices and a decline in production. Also, the demand for pipes in the domestic market significantly went down, reflecting negatively on the performance of the Russian pipe industry.

According to the Federal Customs Service, from January to September 2012, Russia’s imports of steel pipes decreased 2.3 times to 604.6 thousand tons. In value terms, from January to September 2012, imports of steel pipes decreased 2.1 times to USD1.058 billion. Imports of steel pipes in January-August 2012 decreased to 34.3 percent of their volume from January to August of the previous year and amounted to 506.3 thousand tons. The supplies from the C.I.S. went down to 39.5 percent of their last year’s figure to 334.5 thousand tons. The supplies from foreign countries went down to 27.6-percent of their last year’s figure to 174.0 thousand tons. It should be noted that the imports of pipes from the Ukraine decreased by more than half to 44.1 percent of their last year’s level to 282.8 thousand tons. The share of Ukrainian pipe imports to total pipe imports is 55.9 percent. The share of Ukrainian pipe imports of C.I.S. countries’ imports is 84.6 percent. Ukrainian imports constitute 5.1 percent of domestic consumption in cash terms. The share of imported pipes in the domestic market from January to August 2012 was 9.1 percent, lower than the annual average figures for 2011, 2010, and 2009, which were 16.2 percent, 15.3 percent, and 10.8 percent respectively.

From January to August 2012, exports of steel pipes stood at 1,019 thousand tons, or 111.3 percent of the volume for the corresponding period of the previous year. The largest consumer of Russian steel pipe is Kazakhstan, with 30.1 percent of exports amounting to 306.5 thousand tons in the reporting period.

Many Russian pipe producers are not doing well. As such, many plants are planning to downsize their workforces. For example, in the next two years, the Chelyabinsk Pipe Rolling Plant will lay off 1,400 employees, mostly managers. Despite the facts that the company holds one fifth part of the Russian market and that its corresponding annual turnover is USD2 billion, the plant finds itself in a difficult financial situation. The company’s performance was affected by a sharp decline in the demand for Chelyabinsk pipe in the Russian fuel and energy sector.

Compared to the first half of 2012, the situation has improved, however. Of the seven Russian flagship plants, three reduced production from January to September 2012, namely VSW, the Volga Pipe Plant, and the Chelyabinsk Pipe Rolling Plant. In the past two months, the leading enterprises in the industry, with the exception of VSW, did not disclose their statistics of production. However, in view of the overall economic trends, it is safe to assume that the results of the other enterprises were on the decline as well.

Mini-factory model

Due to the rising costs of production expected next year, major manufacturers plan to move from large enterprises to mini-factories. Four mini-factory for the production of construction steel will be built and launched in Russia, increasing the turnout of steel pipes of various sizes. The launch of Severstal’s mini-mill for long products in Balakovo is scheduled for the second quarter of 2013. The production volume is expected at 1 million tons of rolled products. The launch of another project – the NLMK – is also scheduled for 2013. The NLMK complex will perform electric arc redistribution with the annual capacity of the first stage at 1.5 million tons of steel. Evraz will launch the operations of two rolling complexes at the same time. In the Rostov region, the Yuzhniy mill will be constructed, while in northern Kazakhstan the company will build the Vostochniy mill, which will produce an average of 0.45 million tons of steel a year.

Non-ferrous metals

Non-ferrous metals production from January to September 2012 was at 99.33 percent relative to January-September of the previous year. In the monthly comparison, September 2012 production was 94.6 percent of September 2011 production figures. September production was 95.8 percent of the August production statistics.

Exports of non-ferrous metals increased compared to the previous year, accounting in large measure for the modest decline in domestic production. Exports of copper and products thereof in bulk tonnage increased in January-September 2012 by 19.7 percent compared to January-September 2011. Exports of aluminum and products thereof increased by 5.3 percent, while the supply of nickel and nickel products increased by 41.9 percent, offsetting the loss of revenue for Russian companies resulting from lower world prices for the base metals.

Precious metals

The production for precious metals and products with high added value was unchanged at 100 percent of last year’s level (group average) in January-September 2012, while the production of basic non-ferrous metals was at 98.84 percent of corresponding 2011 figures. The small downturn is due to the decline of the global non-ferrous metals market.

Aluminum production

The production of primary aluminum in January-September 2012 was 100.9 percent of the production volume for January-September 2011. September 2012 production was 98.1 percent of August 2012 production. At the same time, September 2012 production stood at only 93.1 percent of September 2011 production.

Production figures at Russian aluminum smelters were tied to the dynamics of export supplies of raw aluminum, which rose by 11.6 percent to 2,720.6 thousand tons, compared to 2,437.2 thousand tons in January-September 2011. The production of alloys based on primary aluminum in January-September 2012 increased by 12.3 percent compared to January-September 2011. Aluminum enterprises increased production of more expensive foundry alloys, including of those based on primary aluminum.

Reductions in the production of primary aluminum were observed at aluminum plants that cannot compete in terms of capacity. The plants that did reduce primary aluminum production had costs in excess of USD2,500 per ton, subject to the payment of interest on loans and other expenses. The average world price for primary aluminum for the first eight months of 2012 was USD2,022.4 per ton, and so the production facilities affected by the price drop shifted to the production of aluminum alloys.

The growth of aluminum production from January to September 2012 in comparison with the figure for January-August of the previous year was registered at only two Russian aluminum plants, the Urals plant and the Novokuznetsk plant. The remaining plants virtually did not change the level of production, and the Bogoslovsky aluminum plant effectively reduced its production rates. The reason for this reduction was the overproduction of aluminum in the world, mostly in China, the excess metal in warehouses, and the global crisis. Moreover, the domestic demand for aluminum in Russia is very low, and the industry is entirely export-oriented.

Downsizing

In October and November, RUSAL continued to curtail unprofitable production in the Urals, Karelia, and the Volga region. The downsizing concerned the Nadvoitsy, the Bogoslvsky, the Volkhov, and the Novokuznetsk aluminum smelters, and earlier plans to produce over 150 tons of aluminum before the end of the year were scrapped.

The Bogoslovsky aluminum plant was on the verge of closing in early 2012. At that time, RUSAL explained that production at the plant would be possible if electricity costs are at 97 kopecks per kWh. The current rate for 1 kWh is 1.4 roubles. The problem was to be resolved by the sale to RUSAL of the Bogoslovsky Thermal Power Station, which would have reduced the cost of electricity. However, RUSAL and KES-Holding, which owns the Bogoslovsky station, did not come to an agreement on the price. Following a wave of protests and the intervention of the authorities, the plant was nevertheless saved from closing. The company reached an agreement with Rosatom for the provision of special rates for the electricity supplied to the Bogoslovsky aluminum plant for a two-year period from 2013 to 2014.

As during the economic crisis in 2008, the state is again intervening to save the company, even if doing so is to the detriment of the government’s own interests. As such, the board of Vnesheconombank agreed to fund a project to modernize RUSAL’s production line in the Sverdlovsk region in the amount of 1.7 billion roubles. VEB’s board asked the bank’s permission to participate in the project, as agreeing to the project was technically in violation  of the guidelines of the memorandum on financial policies of Vnesheconombank. The money is needed to increase the production and the consumption of raw materials, primary aluminum, as well as semi-finished and finished products in the Sverdlovsk region. The sectors of transport engineering and aerospace in the region are expected to benefit from the investment.

The project, however, does not meet the quantitative criteria set out in VEB’s own memorandum on financial policy. In particular, the total cost of the project is less than two billion roubles, while the guidelines provide that the amount of financing must not be less than the two billion roubles for a single borrower. RUSAL’s loan in this case would be 1.7 billion roubles, or USD55 million. The loan is to be formally issued to several borrowers, including JSC Siberian-Urals Aluminum Company, SUAL-Silicon-Ural, and SUAL Powder Metallurgy. The modernization of the foundry at the Bogoslovsky aluminum plant requires about USD25 million. The Urals Aluminum Plant requires a USD30 million investment.

At the moment, RUSAL’s net debt, according to the company, is USD11 billion. Additionally, RUSAL does not have the best credit history with VEB. In 2008, RUSAL took out a loan to repay a previous VEB loan received in April 2008 from a syndicate of Western banks for the purchase of a 25-percent-stake in MMC Norilsk Nickel in the amount of USD4.5 billion. That amount also greatly exceeded the standards set by the memorandum, but VEB agreed to finance the projects.

The company’s financial performance is also not encouraging. Revenues under IFRS in the third quarter compared to the prior quarter decreased by 9.1 percent to USD2.6 billion, the EBITDA fell 2.5 times to USD130 million, the net loss increased by 2.1 times to USD118 million. Net loss excluding the revaluation of the company’s stake in Norilsk Nickel increased 11.3 times to USD248 million. Losses from operations increased 1.7-fold to USD27 million as production figures plummeted in the first nine months. Revenues decreased compared to the previous year by 12.8 percent to USD8.3 billion, the EBITDA went down three times to USD694 million. Net loss was USD117 million, against a profit of USD1.2 billion in the previous year. Adjusted for the effect of the revaluation of the Norilsk Nickel stake, the operating net loss was USD360 million. In the previous year, the company made a USD877 million profit. The reason for worsened economic performance is the low price of aluminum, which has reached a critical level for the company. Experts predict that the price of aluminum will not go up anytime soon, so that the problem in the industry is likely to get worse in the near term.

Copper production

Copper production from January to September 2012 stood at 93.5 percent of the level for January-September 2011. The copper production figure decreased in September 2012 compared to September 2011 by 2.4 percent. As compared to August of this year, the price increased 5.3 percent.

Exports of refined copper rose in January-September 2012 to 204.9 thousand tons, compared to 103.9 thousand tons in January-September 2011. The average monthly supply increased to 22.7 thousand tons, compared to 15.3 thousand tons in 2011. Exports of high-processed products, such as copper wire, were lower than in the previous year. In January-September 2012, Russian companies delivered for exports 274.2 thousand tons of copper wire, while in January-September 2011, exports stood at 282.9 thousand tons. Average monthly shipments in the first nine months of 2012 decreased to 30.5 thousand tons from 31.3 tons in the first three quarters of 2011.

Analysts fear that copper production could fall even lower. From January to August 2011, the only Russian copper producer with positive growth rates was UMMC, however the company has not yet posted its results for January-September 2012. Reduced production of refined copper at the Novgorod and Kyshtym Copper Plant resulted from the deficiency of copper scrap in Russia.

Nickel production

Nickel production for January-September 2012 was at 98.2 percent of the production levels seen in January-September 2011. In September 2012, Nickel production decreased by 6.7 percent in the annual comparison. Compared to August 2012, September’s production figure demonstrated a decrease of 1.8 percent.

There has been significant growth in exports of nickel, which went up from 116.5 tons in January-September 2011 to 169.7 tons in January-September 2012. The growth of exports in 2012 was due to enhanced export promotion and less downtime of the Dudinka port (shipping in June 2011 was only 1.3 thousand tons and in July 2011 only 0.5 tons, whereas in June 2012 export shipments were 16.9 tons, and in July 2012 a whole 21 tons).

However, a steady decline in global prices on nickel forced Russian producers to reduce the metal’s production. When prices are low (less than USD20,000 per ton), nearly all nickel companies are experiencing losses.

The Yuzhuralnickel Combine (according to the employment center of Orsk) in the summer reduced the volume of equipment production, and laid off 20 percent of the workers with the payment of two thirds of the average wage, which detrimentally affected the company’s production volume.

MMC Norilsk Nickel was not able to win the first tender for the development of the Norilsk-1 field. The company lost to the Amour Artel, which is part of Russian Platinum. The reserves at Norilsk-1 were estimated at 851.3 tons of nickel, 1.2 million tons of copper, 35.9 thousand tons of cobalt, with platinum group metals and gold detected also. However, the government has decided not to approve the results of the tender. After the announcement of Amour’s victory, Norilsk Nickel declared that the tender committee, composed mainly of Rosnedra employees and the employees of subordinate bodies, made a number of violations and adopted an unjustified decision. The results of the contest were challenged through FAS, Rosnedra, the Ministry of Natural Resources, and other agencies, with an outcome favorable to Norilsk Nickel. At this time, it is expected that the right to develop the field will most likely be sold at auction, in which the chances of winning for the Russian Platinum group will be significantly lower.