Bloomberg News

Mechel, Gazprom Fall on ECB Balance Sheet Jump: Russia Overnight

December 29, 2011

Dec. 29 (Bloomberg) -- OAO Mechel and OAO Gazprom fell in New York on concern the surge in the European Central Bank’s balance sheet shows a lack of capacity for new loans, dimming the outlook for European growth and Russia’s commodity exports.

The Bloomberg Russia-US 14 Index of Russian companies traded in the U.S. dropped for a second day, losing 1.5 percent to 89.77, its lowest level since Dec. 19. Futures on the dollar- denominated RTS index expiring in March slipped 0.6 percent to 135,420. Mechel, Russia’s largest coal producer for steelmakers, declined 3.5 percent after a 6.7 magnitude earthquake temporarily halted operations at its Siberian mines.

The ECB’s balance sheet soared to a record 2.73 trillion euros ($3.55 trillion) as it lent financial institutions 489 billion euros last week to prevent a credit shortage, the Frankfurt-based bank said in a statement yesterday. Crude fell, gold capped the longest slump in two years and the euro tumbled to a 10-year low against the yen on speculation the ECB may be running out of fire power to shield the region’s economies from a recession. Europe is Russia’s largest trading partner.

“Investors had been thinking the ECB will print a lot of money and we’d be off to the races, but this is them saying that they can’t do it anymore,” Bruce Bower, a partner at Moscow- based hedge fund Verno Capital, which manages more than $150 million in assets, said in an interview in New York. “Russia remains very dependent on the swings of foreign investors, and tighter credit lowers capital inflows.”

Commodity Ties

Russia, where the economy grew 68 percent over the past decade on the back of surging demand for commodity exports such as oil, gas and nickel, has been hurt by falling metals prices and slower expansion in China. Investors pulled $326 million from Russia this year and $5.3 billion from funds that invest in all four of the so-called BRIC countries -- Brazil, Russia, India and China, EPFR Global data show.

The RTS Volatility Index, which measures expected swings in the index futures, rose 9.2 percent to 41.69 points, the first increase in 11 sessions. The Market Vectors Russia ETF, a U.S.- traded fund that holds Russian shares, fell for a third day, losing 2 percent to $26.26. The RTS Index in Moscow retreated 1.2 percent to 1,382.19, and the 30-stock Micex Index slipped 0.2 percent to 1,383.09.

Mechel’s American depositary receipts dropped to $7.90, the lowest since July 2009, after an earthquake forced underground mining in Kemerovo, Russia’s biggest coal-producing province, to be closed temporarily. Shares in Moscow dropped 2.7 percent to 256 rubles, or the equivalent of $8.05. One ADR represents one ordinary share.

Gazprom Slumps

Gazprom, the world’s biggest natural gas exporter, fell 2.2 percent to $10.60 after shares in Moscow dropped 0.3 percent to 169.90 rubles, or the equivalent of $5.34. One ADR represents two ordinary shares.

OAO Sberbank, Russia’s largest lender, fell to its lowest price in a month in New York, declining 2.4 percent to $9.96 after shares in Moscow dropped 0.9 percent to 79.27 rubles, or the equivalent of $2.49. One ADR represents four ordinary shares.

The Standard & Poor’s GSCI index of 24 raw materials fell for the first time in seven days, dropping 1.2 percent to 645.44 as copper fell to a one-week low and nickel declined. Copper futures for March delivery retreated 1.3 percent to close at $3.3655 a pound on the Comex in New York. Nickel lost 0.2 percent to $18,475 a ton on the London Metal Exchange.

The euro fell 1 percent to $1.2937 to the dollar in New York yesterday. Russia’s ruble weakened 1.1 percent to 31.7945 per dollar.

Energy Prices

Oil for February delivery declined from a six-week high as concerns eased that Iran will block the Strait of Hormuz, a corridor linking the Persian Gulf with international ports. Oil fell 2 percent to settle at $99.36 a barrel on the New York Mercantile Exchange.

Brent oil for January settlement dropped 1.6 percent to $107.56 a barrel on the London-based ICE Futures Europe exchange, and Urals crude, Russia’s chief export blend, lost 1.8 percent to $108.10.

The Micex has lost 18 percent in 2011 and trades at 4.6 times analysts’ earnings estimates for member companies. That compares with an 18 percent slide for Brazil’s Bovespa index, which trades at 10 times estimated earnings, according to data compiled by Bloomberg. The Shanghai Composite Index trades at 10.5 times estimated earnings, and the BSE India Sensitive Index has a ratio of 13.7.

--Editors: Brendan Walsh, Marie-France Han

To contact the reporters 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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