Bloomberg News

RTS Futures Fall on Production as Mechel Slips: Russia Overnight

October 04, 2011

Oct. 4 (Bloomberg) -- RTS futures fell, signaling the measure in Moscow may extend declines from a 15-month low, as a gauge showed Russian manufacturing stagnated in September, sending shares of OAO Mechel lower amid concern the world’s largest energy-exporting economy will continue to slow.

Futures on the dollar-denominated index expiring in December lost 1.3 percent to 126,880 yesterday, as the RTS Index in Moscow dropped 3.7 percent to 1,291.70, the lowest level since July 1, 2010, and the 30-stock Micex Index fell 1.6 percent to 1,344.66, a six-day low. All companies on the Bloomberg Russia-US 14 Index fell as the benchmark slid 3.9 percent to 82.41, the lowest level since Aug. 26, 2010. The Micex may drop 1.5 percent at the start of trading today, according to Alfa Bank.

Manufacturers face “lasting stagnation” as external demand weakens, said Alexander Morozov, HSBC’s chief economist in Moscow. American depositary receipts of Mechel, Russia’s largest producer of coal for steelmakers, extended a four-day drop to 24 percent as Greece missed a deficit target for 2012. The Moscow-based producer got about 19 percent of 2010 sales from Europe, Russia’s largest trading partner.

“There’s real concern about manufacturing trends globally, and with Europe such a mess, the next headline is Europe is going into a recession,” Alec Young, an international equity strategist at Standard & Poor’s in New York, said in a phone interview yesterday. “With Russia, it’s a high stakes decision because prices can move three to four percent in a day. In this environment, you’re not going to get burned worse in many places than Russia.”

Biggest Export Earner

The RTS Volatility Index, which measures expected swings in the index futures, jumped for a third day, gaining 13 percent to 66.99 points, the biggest one-day advance since a 36 percent surge on Sept. 22.

Oil, Russia’s biggest export earner, fell to the lowest price in more than a year on concern Greece will default on its debt payments. Crude for November delivery dropped 2 percent to settle at $77.61 a barrel on the New York Mercantile Exchange, the lowest settlement level since Sept. 28, 2010.

Urals crude, the nation’s chief export oil blend, fell 1.6 percent to $99.29, the lowest level since Feb. 15. Oil and natural gas contribute about 17 percent of Russia’s gross domestic product and as much as 40 percent of budget revenue.

Russia’s gross domestic product rose 3.4 percent in the second quarter, the slowest economic growth since 2009, according to government data compiled by Bloomberg.

The Standard & Poor’s 500 Index declined 2.8 percent to 1,099.23, a one-year low, even as a gauge showed U.S. manufacturing unexpectedly accelerated in September. The Dow Jones Industrial Average lost 2.4 percent to 10,655.30.

Sberbank, Gazprom

The Institute for Supply Management’s factory index climbed to 51.6 last month from 50.6 in August, the Tempe, Arizona-based group said today. A level of 50 is the dividing line between growth and contraction. The median forecast of 82 economists surveyed by Bloomberg News was for a drop to 50.5.

OAO Mechel fell for a fourth trading day, slumping 9.5 percent to $9.22, the lowest level since July 2009, after losing 5.3 percent in Moscow to close at 320.30 rubles, the equivalent of $9.78.

American depositary receipts of OAO Sberbank, Russia’s largest lender, fell 3.7 percent to $8.28, the lowest since the shares began trading on June 28. Sberbank dropped 3.1 percent on the Micex to 68.34 rubles, or the equivalent of $2.09.

OAO Gazprom, the world’s biggest natural gas exporter, declined 4.2 percent to $9.15 in New York after shares in Moscow lost 1.6 percent to 153.55 rubles, the equivalent of $4.69. OAO Lukoil, Russia’s largest non-state oil producer, dropped 3.2 percent to $48.59 after shares in Moscow fell 2.2 percent to 1,600.80 rubles, or $48.93.

Rising Nickel

The Standard & Poor’s GSCI index of 24 raw materials fell 0.9 percent yesterday to 585.62 as copper futures touched a 14- month low of $2.994 a pound, amid speculation demand for industrial metals will wane as the global economy falters.

OAO GMK Norilsk Nickel, the world’s largest producer of the metal, plunged 5.6 percent to $20.30 even as nickel gained 8.1 percent to $19,025 a ton on the London Metal Exchange. Norilsk shares lost 4.2 percent on the Micex to 6,699 rubles, or $204.58. Gold futures for delivery in December jumped 2.3 percent, to settle at $1,659.90 an ounce in New York.

The Market Vectors Russia ETF, a U.S.-traded fund that holds Russian shares, retreated 2 percent to $24.80, while the Bank of New York Mellon Russia ADR Index declined 2.9 percent.

The Micex has lost 20 percent in 2011 and trades at 4.8 times analysts’ earnings estimates for member stocks. That compares with a 27 percent slide for Brazil’s Bovespa index, which trades at 8.7 times estimated earnings, according to data compiled by Bloomberg. The Shanghai Composite Index trades at 10.9 times estimated earnings, and the BSE India Sensitive Index has a ratio of 13.6.

The RTS index lost 30 percent in the third quarter and the Micex fell 18 percent.

The euro was little changed at 1.3184 per dollar yesterday. Russia’s ruble weakened 1.1 percent to 32.5950 per dollar in Moscow, the weakest level since July 2009, data compiled by Bloomberg show.

--Editors: Emma O’Brien, Brendan Walsh

To contact the reporter on this story: Leon Lazaroff in New York at llazaroff@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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