Bloomberg News

Norilsk Leads ADR Slump as Commodities Tumble: Russia Overnight

May 22, 2012

OAO GMK Norilsk Nickel (NILSY:US) led declines in Russian equities traded in New York and futures fell after commodities retreated to the lowest since October 2010.

The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies in the U.S. slid 0.9 percent to 85.89 yesterday. Futures expiring in June on Moscow’s dollar- denominated RTS Index lost 2 percent to 129,175. Norilsk fell to the lowest level in four months as nickel declined while OAO RusHydro (RSHYY:US) dropped 4.1 percent, swelling the premium to its Moscow shares by the most on record, after Interfax news agency reported that Russia may not sell a stake in the company.

The Thomson Reuters/Jefferies CRB Index (CRY) of raw materials declined 1.1 percent 286.50 yesterday, the lowest level in 19 months, as the Organization for Economic Cooperation and Development said Europe’s debt crisis risks spiraling and seriously damaging the world economy. Russia, the world’s biggest energy exporter and largest producer of nickel and palladium, got almost 50 percent of budget revenue from oil and gas sales last year.

“The feeling is that the situation will probably get worse before it gets better,” Slava Smolyaninov, chief strategist at UralSib Capital in Moscow, said by phone yesterday. “Commodities prices have a major impact on investors’ mood; they are linked by the same chain.”

Russian ADRs’ valuations dropped to 4.8 times estimated earnings, less than half the 9.8 multiple for members of the MSCI Emerging Markets Index. (MXEF) Russia was the first of the so- called BRIC countries of Brazil, Russia, India and China to enter a bear market in 2012 after the dollar-denominated RTS Index posted a 20 percent decline on May 14 from a March 15 peak.

‘Withdrawing Money’

“Risk sentiment is off,”Smolyaninov said. “Investors are withdrawing money from BRIC-focused funds.”

The Market Vectors Russia ETF (RSX:US), a U.S.-traded fund that holds Russian shares, declined 1 percent to $24.94 and is down 30 percent from a year ago. The RTS Volatility Index, which measures expected swings in the index futures, rose 9 percent to 45.62 points in New York.

“High volatility will continue in the near future, or at least until there is some solution to Europe’s debt crisis and more clarity on whether Greece would exit the euro,” Konstantin Chernyshev, head of research at UralSib Financial Corp. in Moscow, said by phone. “Russian markets are closely correlated to Europe.”

Europe’s crisis risks spiraling and seriously damaging the world economy, the Paris-based Organization for Economic Cooperation and Development said in its semi-annual report yesterday. Manufacturing in the region covered by the Federal Reserve Bank of Richmond grew in March at the slowest pace of 2012 as orders and sales cooled, figures showed yesterday.

Metals Drop

The Standard & Poor’s GSCI Spot Index sank 0.9 percent to 628.23 yesterday, the lowest since Dec. 19. Gold, platinum, silver and copper fell in New York and nickel slid on the London Metal Exchange, dropping 1.7 percent to $16,900 a ton yesterday.

Norilsk Nickel fell 4.9 percent to $15.29 in New York yesterday, the lowest since Jan. 9. In Moscow, the stock retreated 0.8 percent to 4,995 rubles, or $160.20. Ten ADRs are equal one Moscow-listed share. The company, the world’s biggest producer of nickel and palladium, accounts for 40 percent of global palladium sales and about 12 percent of platinum.

RusHydro Discount

RusHydro dropped to $2.56 in New York, swelling its discount to Moscow-listed shares to 5.3 percent, the most since the company started trading in New York. The stock fell 0.5 percent to 84.36 kopeks or 2.7 U.S. cents in Moscow yesterday. One ADR is equal to 100 shares.

Russia added RusHydro, OAO Rosneft, Federal Grid Co. and OAO MRSK Holding to its list of strategic assets, which may preclude the government from privatizing them, Interfax reported, citing a decree by President Vladimir Putin signed on May 21. A spokeswoman at the Kremlin declined to comment when contacted by Bloomberg News after normal business hours. The government owned 60.38 percent of RusHydro as of March 31, according to the company’s website.

OAO Gazprom Neft (GZPFY:US), the oil arm of Russia’s natural gas monopoly, rose 0.8 percent to $21.18, trading at a premium to the company’s Moscow-listed shares after three days at a discount. The company said yesterday that first-quarter profit rose 21 percent on higher crude prices.

Oil Falls

Oil, Russia’s major export commodity, dropped for an eighth day in nine as Iran agreed to let in United Nations nuclear inspectors, easing concern that the conflict over the country’s atomic energy program would disrupt Mideast supplies.

Crude for June delivery slumped 1 percent to $91.66 a barrel on the New York Mercantile Exchange yesterday. The contract expired at the close of floor trading yesterday. The more actively traded July contract retreated 1.1 percent to $91.85. Front-month futures were down 7.3 percent this year through yesterday.

Brent oil for July settlement lost 0.4 percent to $108.41 a barrel on the London-based ICE Futures Europe exchange. Urals crude, Russia’s chief export blend, fell 0.7 percent to $106.90, the lowest since January.

United Co. Rusal, the world’s largest aluminum producer, was unchanged at HK$4.61 at 10 a.m in Hong Kong trading today. The MSCI Asia Pacific Index slid 1.1 percent.

To contact the reporter on this story: Halia Pavliva in New York at hpavliva@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net


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Companies Mentioned

  • NILSY
    (MMC Norilsk Nickel OJSC)
    • $19.88 USD
    • -0.68
    • -3.42%
  • RSHYY
    (RusHydro JSC)
    • $1.7 USD
    • -0.03
    • -1.76%
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