Bloomberg News

Mechel Leads Commodity Retreat on China Growth: Russia Overnight

July 09, 2012

Mechel Leads Commodity Retreat on China Growth

OAO Gazprom, the world’s largest natural gas producer, declined for a third day, losing 1.2 percent to $9.35. Photographer: Andrey Rudakov/Bloomberg

Russian stocks traded in New York posted the longest stretch of declines in a month, led by commodities producers, on concern the economic slowdown in China will erode demand for metals.

The Bloomberg Russia-US Equity Index (RUS14BN) of the most-traded Russian companies in the U.S. fell for a third straight day for the first time since June 1. OAO Mechel, the country’s biggest maker of coking coal, dropped for a third day, while OAO GMK Norilsk Nickel (NILSY:US), Russia’s largest mining company, tumbled to the lowest in two weeks. Futures expiring in September on Moscow’s dollar-denominated RTS Index rose 0.2 percent to 134,765.

Russia, the world’s biggest exporter of nickel and palladium, said China accounted for about 10 percent of the country’s foreign trade in the first four months of 2012. Economists forecast the Asian nation’s gross domestic product expanded at the slowest pace in three years during the second quarter. Premier Wen Jiabao said the world’s second-largest economy faces “relatively large” downward pressure, the state- owned Xinhua News Agency reported on July 8.

“China is a price-defining factor when it comes to commodities,” Andrey Tretelnikov, an analyst at Rye MAN & Gor Securities, said by phone from Moscow yesterday. “Chinese demand is crucial for commodities overall and for Russian mining stocks in particular.”

The Market Vectors Russia ETF (RSX:US), the biggest U.S.-traded exchange-traded fund that holds Russian shares, fell 0.3 percent to $26.07, dropping for a third consecutive session to the lowest since June 28. The RTS Volatility Index, which measures expected swings in the index futures, rose 0.1 percent to 32.03.

‘Appetite Diminishes’

Russia’s trade with china reached $27.4 billion in the January-to-April period, nearly 10 percent of the $269.5 billion in exports and imports, according to Russia’s Federal Service of State Statistics.

The Chinese economy may have expanded 7.7 percent in the second quarter from a year earlier, analysts estimated ahead of government data scheduled for July 13. That would be the slowest pace in three years.

The Bloomberg Russia-US Index declined 0.6 percent to 88.49 yesterday in New York.

“Russia is being sold as investors’ risk appetite diminishes following the poor economic data,” Ilya Kravets, a research analyst at ED Capital in New York, said by e-mail yesterday.

Mechel (MTL:US)’s American depositary receipts slumped 2.3 percent to $6.08 yesterday, settling at a 1.1 percent discount to the company’s Moscow-listed shares. The company’s Moscow stock fell 2.4 percent to 202.70 rubles, or $6.15.

‘Less Optimistic’

Otkritie Financial Corp. reduced its recommendation on the ADRs to hold from buy and lowered its price estimate to $6.40 from $16.60, citing “less optimistic commodity price assumptions,” Denis Gabrielik, a Moscow-based analyst wrote in an e-mailed report on July 9.

Deutsche Bank reiterated cut its target price on the shares to $7.80 per ADR from $9.

American depositary receipts of Norilsk, the world’s largest producer of nickel and palladium, fell 1.3 percent to $16.12, the lowest since June 25. The company’s Moscow-listed stock retreated 0.7 percent to 5,314 rubles, or $161.33. Ten ADRs equal one common share.

OAO Gazprom (OGZPY:US), the world’s largest natural gas producer, declined for a third day, losing 1.2 percent to $9.35. The stock fell 0.6 percent to 154.43 rubles, or $4.69, on the Micex yesterday. One Gazprom ADR is equal to two ordinary shares.

‘Fundamentally Bearish’

Morgan Stanley is “fundamentally bearish” on natural gas in the near term and expects “natural gas prices to remain under pressure until the market works through this excess supply,” according to a July 9 e-mailed report.

Oil for August delivery rose 1.8 percent to $85.99 a barrel on the New York Mercantile Exchange yesterday, rising for the first time in three days as a labor strike threatened to halt all offshore oil and gas production in Norway, Western Europe’s biggest exporter.

“RTS futures are gaining along with oil prices, which are being propelled by the possibility of a stoppage of Norwegian off-shore oil production,” Ed Capital’s Kravets said.

Brent for August settlement added 2.2 percent to $100.32 a barrel on the London-based ICE Futures Europe exchange. Urals crude increased 1.2 percent to $99.33 per barrel yesterday.

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)
    • $19.9 USD
    • -0.10
    • -0.5%
  • RSX
    (Market Vectors Russia ETF)
    • $23.67 USD
    • -0.22
    • -0.93%
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