Bloomberg News

Gazprom Neft Leads Slide as China Sinks Crude: Russia Overnight

April 15, 2012

An OAO Gazprom Neft attendant fills a customer's car with fuel at a gas station in Moscow. Photographer: Andrey Rudakov/Bloomberg

An OAO Gazprom Neft attendant fills a customer's car with fuel at a gas station in Moscow. Photographer: Andrey Rudakov/Bloomberg

OAO Gazprom Neft (GZPFY:US) slumped the most in three weeks and OAO GMK Norilsk Nickel slid on concern slowing growth in China will restrain demand for commodities.

Gazprom Neft, the oil arm of Russia’s natural gas export monopoly, tumbled the most since March 22 on April 13, bringing its weekly decline to 2.1 percent, the most since the week ended March 16. Norilsk, the world’s biggest nickel producer, fell (NILSY:US) for a fourth straight week, exacerbating the steepest run of losses in the Bloomberg Russia-US Equity Index of Russian shares traded in New York since 2008. Futures expiring in June on the RTS (RTSI$) Index added 0.3 percent to 157,355 in U.S. trading.

Crude dropped for the first time in three days on April 13 after China said gross domestic product rose 8.1 percent in the first quarter, below the median analyst estimate and the slowest pace for 11 quarters. Copper and nickel tumbled on concern a retreat in the world’s second-largest economy and biggest exporter of goods will crimp demand for raw materials. Russia is the world’s largest energy exporter.

“Chinese growth dictates the demand for oil and metals and any sign of a slowdown creates fear for Russian commodity producers,” Dmitry Mikhailov, who manages $130 million as a portfolio manager at Renaissance Capital Ltd., said by phone from Moscow on April 13. “China is like a bull in a china shop, one slight negative move has a large effect on Russia.”

Sales of oil and gas provided almost 50 percent of the Russian government’s revenue last year and make up 17 percent of GDP. Norilsk (NILSY:US) is the world’s largest producer of nickel and palladium.

Saudi Oil Move

American depositary receipts of Moscow-based Gazprom Neft fell 2.7 percent to $25.94 on April 13, snapping three weeks of gains to slide 2.1 percent. The ADRs traded at a 0.2 percent discount to the Moscow shares, which declined 1.8 percent last week to 153.82 rubles, or $5.20. One ADR is equal to 5 ordinary shares.

Oil, Russia’s biggest export earner, retreated as China’s economic growth slowed and Saudi Arabia’s Oil Minister Ali al- Naimi said the kingdom is working toward damping prices. Crude for May delivery slumped 0.5 percent to $102.83 a barrel on the New York Mercantile Exchange last week.

Urals crude, Russia’s chief export blend, dropped 1.6 percent for its fifth week of declines to $117.53.

ADRs of Norilsk, Russia’s biggest mining company, fell 0.6 percent to $17.74 in U.S. trading on April 13 for a 3 percent slide in the week, the fourth straight weekly loss. The U.S. shares traded at a 0.3 percent premium to those listed in Moscow, which retreated 1.4 percent to 5,237 rubles, or $179.95. One ADR represents one-10th of an ordinary share.

Worst Run Since 2008

Norilsk got 22 percent of revenue from Asia in 2010, up from 14 percent in 2007, data compiled by Bloomberg show. The Standard & Poor’s GSCI index of 24 raw materials fell 0.8 percent to 682.17 on April 13, declining 1 percent last week. Nickel, copper, aluminum and lead slipped in London.

The Bloomberg Russia-US Equity Index (RUS14BN) lost 0.9 percent to 104.56 on April 13, bringing its slide last week to 1.6 percent. It was the sixth straight weekly decline and the longest run of losses since 2008.

Russia-focused (INDEXCF) equity funds saw outflows for the first week since January, and investors pulled cash from Brazilian stock funds for a fourth week, according to EPFR Global.

Outflows from Russian funds reached $40 million in the week to April 11 after cumulative inflows of $1.3 million in the previous 10 weeks, data compiled by EPFR, a Cambridge, Massachusetts-based research firm, showed.

Russia ETF Slump

The Market Vectors Russia ETF (RSX:US), a U.S.-traded fund that holds Russian shares, fell 0.6 percent to $30.14 on April 13, losing 1.6 percent last week. It was also the sixth week of declines for the ETF, the most consecutive drops since 2008. The RTS Volatility Index (RTSVX), which measures expected swings in the index futures, lost 1.7 percent to 31.21 points in U.S. trading on April 13.

Urals crude is expected to average $122.90 per barrel in 2012, compared with a previous estimate of $102.60, Credit Suisse AG analysts led by Zoltan Palfi in London wrote in an e- mailed report on April 13. The bank raised the forecast by 16 percent to $129.90 per barrel in 2013 and by 13 percent to $132.40 in 2014, according to the report.

“A higher oil price does not change the underlying picture of deteriorating profitability driven by escalating costs and increasing fiscal burden,” the analysts said in the report. “Relative to international peers, on our forecasts the Russian oil companies do not screen as either being cheap or offering superior volume growth outlook on a sector level.”

Sell Rosneft

Credit Suisse reiterated its underperform recommendation on state-run OAO Rosneft (ROSN), Russia’s biggest oil producer, and increased its target price 6 percent to 180 rubles ($6.08) per share. The rating suggests that investors sell the stock. OAO Lukoil (LUKOY:US), Russia’s largest independent crude producer, had its Moscow-traded share-price target raised by 5 percent to 1,790 rubles per share and its neutral rating reiterated.

Lukoil fell for the first time in three trading days in New York on April 13, dropping 0.8 percent to $61.39 and trimming its weekly advance to 0.4 percent. Stock traded on Moscow’s Micex Index declined 0.1 percent to 1,812.10 rubles, or $61.21, reducing last week’s gain to 2.3 percent.

Russia’s 30-stock Micex dropped 1.3 percent last week to 1,502.65 in Moscow, while the RTS (RTSI$) gauge was little changed at 1,612.74. It was the Micex’s third straight weekly drop, the longest run of declines this year.

United Co. Rusal (486), the world’s largest aluminum producer, was unchanged at HK$5.76 in Hong Kong trading as of 10:55 a.m. local time. The MSCI Asia Pacific Index fell 0.9 percent today as a surge in the cost of insuring against a Spanish debt default fueled concerns over Europe’s debt crisis.

To contact the reporters on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net; Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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Companies Mentioned

  • GZPFY
    (Gazprom Neft OAO)
    • $19.75 USD
    • 0.05
    • 0.25%
  • NILSY
    (MMC Norilsk Nickel OJSC)
    • $20.56 USD
    • 0.31
    • 1.51%
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