Russia

Most of the commodities markets’ focus has been on the sovereign debt crisis in Europe and the worry of a possible hard landing in China.

While these are the main risks facing the global economy, other issues are out there; issues which, in the absence of these very immediate concerns, would be taking greater prominence than they are. One such risk, sometimes termed a tail risk” by commodities markets, is Russia.

According to the CIA, in 2009 Russia was the world’s largest exporter of natural gas, the second-largest exporter of oil, and the third-largest exporter of steel and primary aluminum, not to mention also being a major export supplier of metals such as nickel, platinum, chromium, cobalt, titanium and agricultural raw materials including wheat and barley. From a commodities point of view, Russia is arguably more crucial than Iran or Libya were to the oil market, if for no other reason than the country is a major exporter of so much more than just oil.

“Big deal!” you may say; Russia is not a revolutionary Libya or a nuclear-armed Iran facing Western sanctions. No, but the unrest that swept the Middle East this summer has touched many other parts of the world. The FT reported that early last month, tens of thousands of people took to the streets in Moscow to demand a rerun of elections. It was Russia’s largest opposition demonstration since Boris Yeltsin took on the Supreme Soviet in 1993.

The fear, so far low key, is that political unrest in Russia could intensify in the run-up to the presidential elections on March 4, and after that Vladimir Putin, the prime minister, is likely to become president again. The current wave of demonstrations is rejecting the Kremlin’s authoritarian model of managed democracy,” by which Mr. Putin has governed the country for more than a decade.

Six months ago his position seemed unassailable, but today cracks are beginning to show, and just as with Middle Eastern dictators, opposition is starting in the streets. Putin’s authoritarian ruling party holds complete control of the media and will be ruthless in suppressing opposition. Unseating his return to the presidency would require huge opposition. With an iron grip on the military, media and judiciary, Putin is no more than rattled at the moment.

But the unrest could spread and the consequences for global commodity prices could be significant if they look like seriously disrupting the status quo. Apart from price, supply security is also an issue. Over two-thirds of Russian exports to the United States are fuels, mineral oil, or metals., while exports elsewhere are overwhelmingly commodity-based — with oil, natural gas, metals, and timber comprising nearly 90 percent of Russian exports, according to Russian state statistics.

They said Tunisia was an isolated situation, that Libya was a case of tribal unrest, and that the riots on Cairo’s streets were no more than popular opposition to food prices. But as regime after regime has fallen — sometimes with violent conflict — nowhere is looking totally secure. Syria will be next, and while Russia is not the brutal regime of Libya or Syria, Russia’s people have suffered a growing sense of disenfranchisement as Vladimir Putin’s brand of cronyism and corruption has spread to every facet of government and business.

The president-to-be doesn’t need to fail to impact prices; he only needs to look at risk of failing. Russia could be one to watch in 2012.

–Stuart Burns

Although precious metals have suffered recent heavy falls, there is at least some evidence of price support for platinum and palladium next year, if not gold. (See our recent coverage of the palladium outlook.)

Recent price falls have been accompanied by a growing net short position on Nymex, characterized by 62,700 ounces being added to speculative short positions, according to Standard Bank, bringing speculative shorts to 311,600 ounces compared to last year’s average of 112,300 ounces, while ETF holdings dropped 41,000 ounces, the largest fall this year. Palladium also added 117,000 ounces to net short positions, suggesting the market is expecting further price weakness next year.

As these graphs of ETF holdings show, platinum and palladium prices have been falling during the last quarter, reflecting the markets’ oversupply position and slowing growth in Asia on top of the fear of recession in Europe:

Source: Standard Bank

However, a Bloomberg report this week has a different story to tell.

Firstly, on the supply side, the story states supply will decline next year in both South Africa and Russia, which between them account for 88 percent of global supply. Quoting estimates by Barclays, this is due in part to rising costs; mining expenses are said to have risen 30 percent last year in South Africa and 13 percent in Russia. Anglo American is quoted as saying production costs could reach $1,573 per ounce this year, making some operations uneconomic.

Mining companies are paying more for wages and energy, at a time when they are digging deeper than ever to maintain production. With shafts extending down as much as 1.4 miles, temperatures at the rock face in South Africa can reach as high as 162 degrees Fahrenheit, requiring a hugely expensive cooling and support infrastructure. So platinum production has the potential to be constrained next year while demand from auto catalysts is forecast by Morgan Stanley to rise 17 percent to about 3.83 million ounces.

Indeed, the bank is not alone in its bullish outlook on the auto industry. Respected research company LMC Automotive is forecasting a record 79.5 million cars and light commercial vehicles in 2012, a 6.5 percent increase over this year. Carmakers in some markets have been performing strongly all year. Four of the six largest automakers in the U.S. beat analysts’ expectations in November, boosting industry sales to a 13.6-million seasonally adjusted annualized rate, the most in more than two years, New Jersey-based Autodata Corp. is quoted as saying.

The most accurate predictor of platinum prices over the last two years, Thorsten Proettel, an analyst at Landesbank Baden-Wuerttemberg in Stuttgart, Germany, observed the connection between rising demand and the current low prices compared to production costs. “The price is very low and very near production costs¦we won’t have a global recession next year, emerging markets will still prosper, he said.

BNP Paribas agreed, saying “platinum’s supply outlook remains constrained, auto catalyst and industrial demand could rebound in the second half of 2012, when we expect economic growth to recover. Lonmin, the mining group, concurred, saying they did not expect the platinum price to move much in the first half of 2012, but prices could rebound strongly towards the latter part of next year.

The time to fix prices forward, as far as buyers are able, may come in the first half of 2012 when the wider economic situation becomes clearer, certainly as the chances of stabilization and growth for Europe and the reality of a soft landing materializes for China.

–Stuart Burns

TC Malhotra contributes to MetalMiner from New Delhi.

India’s state-owned miner NMDC Ltd. and Russian steel and mining giant Severstal have signed the implementation protocol in Moscow for setting up a joint venture steel plant in the southern Indian state of Karnataka, according to a recent article in the Hindu Business Line.

The implementation protocol between NMDC and Severstal takes another step following the memorandum of understanding (MoU) they had signed in December 2010 for establishing a steel plant with an initial capacity of 3 million metric tons in Karnataka.

The proposed steel plant may be commissioned by 2017. The 50/50 joint venture project will span about 2,800 acres of land at Bellary in the southern state. The plant is estimated to cost $4 billion and would be funded with a 70/30-debt equity ratio by the Indo-Russian partners.

According to a statement issued by NMDC, a high-level delegation from India including the Indian steel minister and other NMDC executives held discussions with Severstal in their Moscow office. Severstal and NMDC discussed progress in establishing their joint project in Karnataka.

NMDC is involved in the exploration of wide range of minerals including iron ore, copper, rock phosphate, limestone, dolomite, gypsum, bentonite, magnesite, diamond, tin, tungsten, graphite, and beach sands. NMDC is India’s single-largest iron ore producer and exporter, producing about 30 million tons of iron ore from three fully mechanized mines. India is planning to increase its steel capacity to almost 200 million tons by 2020, which would only put a dent into China’s production lead.

The protocol defines the initial target plant capacity to be 3 million tons of finished steel. It also confirms NMDC and Severstal’s intentions to fully meet the joint venture’s captive requirements of both iron ore and coking coal so that it becomes fully integrated for these primary raw materials.

According to the statement, until the captive assets are fully developed, NMDC and Severstal take the responsibilities to supply iron ore and coking coal to the JV at market basis from their existing assets or alternative sources.

Alexey Mordashov, Severstal’s chief executive, is quoted as saying, “Our joint venture project in India with NMDC provides a very good fit with Severstal’s vertically-integrated, growth-focused business model. P.K.Mishra, the Indian government’s secretary of steel, is also quoted as saying this will be a vital move for the Indian steel industry.

Rana Som, chairman and managing director of NMDC, also reinforced that NMDC wants to make the project not only financially strong, but also socially meaningful and economically relevant to meet India’s needs.

Incorporated in 1958 as a fully owned public enterprise, NMDC is under the administrative control of the Government of India’s Ministry of Steel.

–TC Malhotra

Hot on the heels of our articles (here and here) a couple of weeks ago about China’s C919 sub-200-seat, single-aisle contender with Airbus’ A320 and Boeing 737, comes Russian Sukhoi’s single-aisle 100-seat SuperJet in competition with Bombardier of Canada and Embraer of Brazil.

Source: blog.flightstory.net

Not that serious aviation experts are really ranking the SuperJet on par with the established players just yet (certainly not more than they would place the C919 on par with the A320 or 737), but the rise of emerging market plane makers is an interesting trend which will have subtle yet far-reaching effects on the aerospace metals supply market in the decade ahead.

Show Me the Sukhoi

Arguably Russia’s Sukhoi has a better pedigree than China’s COMAC. Although seasoned travelers all have a scary domestic Russian flight story aboard an aging Tupulev to tell at dinner parties, the reality is Sukhoi did build some impressive military jets even if their commercial offerings left a lot (and I mean a lot) to be desired!

The firm claims it has orders for 176 of the new SuperJets on its books, including 15 for Mexico’s second-largest airline InterJet. The firm hopes to sell 800 and has sold 25 percent of the firm plus given marketing rights to Italian engineering firm Finmeccanica’s Alenia Aeronautica. Sales are being run out of Venice for non-former Soviet markets and application has been made for European certification.

Certification will be one thing; widespread acceptance of Russian aircraft may be another. While passengers in emerging markets and discount airlines may be willing to compromise their trust in the plane maker for a lower fare, major western airlines may take longer to be persuaded. An article in the NY Times explains the firm has already had talks with Delta and SkyWest about possible sales, but buyers will be only too well aware that memories run deep of multiple plane crashes in the former Soviet block and those are the ones that hit the headlines. Although the new plane is said to look and feel like a modern airliner, with pleasant furnishings, bright lights and quiet, high bypass engines, it’s the accident record travelers will likely focus on.

Good For Russian Metal

Still, Sukhoi is something of a national champion and will receive considerable support. It is probable the plane will be produced in significant numbers and a slow acceptance may be engendered overseas. The return of volume aircraft manufacturing will encourage Russian aluminum and titanium producers to focus on domestic supply at the expense of exports. Europe has become reliant on Russian aluminum and titanium supply for a significant portion of their commercial market needs.

As Russian mills divert material not just to aerospace but to a robustly growing domestic economy, less material will be available for export, putting upward pressure on prices. Sukhoi’s regional SuperJet does not need to make major inroads into the US or even Europe to have an impact on both established players or the supply chain. Significant sales to cost-conscious new entrants in places like India or Indonesia could still amount to substantial sales, impact established plane builders’ prospects and affect the metal supply chain.

–Stuart Burns

MetalMiner has focused on energy policy and activity in the energy sector a lot lately and with good reason. Crude oil trends, natural gas, shale oil and shale gas, fuel tax and subsidy activity are all key components of knowing where metal prices will be weeks or months ahead, and knowing the energy landscape is critical for those in charge of their companies’ buys.

As most of us know, the first step in progressing as an economy is actually establishing a long-term energy policy, which the US has yet to satisfactorily accomplish. A clear and strong policy is the key to energy independence. But the US is not the only nation with a fractious relationship between government, Big Oil and energy independence.

We all remember the series of battles and stalemates that resulted from Ukraine and Russia tussling over gas supply, pipelines and prices over the past half decade. Russia has always given Ukraine a relative deal on the oil and gas the latter receives from the former, (since Russia depends on the pipelines that snake through Ukraine to get its fuel to energy-hungry Europe), but then Gazprom began raising prices substantially when the pro-Western President Viktor Yushchenko came to office.

Tomorrow, Ukraine celebrates 20 years of independence from the Soviet Union. As an article from oilprice.com points out, that all may be changing as Ukraine is beginning its arduous journey to energy independence (Incidentally, tomorrow, Ukraine celebrates 20 years of independence from the Soviet Union). Shell, Chevron and others are interested very interested in developing Ukraine’s rich reserves, and they seem to be putting their money where their mouths are.

Shell plans to spend multibillions to develop the Yuzovsky gas field, and is also working out a deal with Ukraine’s state-run Naftogaz to boost oil and gas production on the Black Sea shelf and in the Sea of Azov. Meanwhile, Chevron may try to penetrate western Ukraine with a venture in the Olessky field, a 2,700-square-mile-wide stretch, according to the article.

The head of Ukraine’s state geology and subsurface resource service, Eduard Stavitsky, put the state fund of subsurface resources at about “1.1 trillion cubic meters of gas and about 130-150 million tons of oil with gas condensate.

Shale, however, figures prominently, as TNK-BP is ready and willing to invest $2 billion in shale gas development across Ukraine over the next 10 years, hoping to take advantage of those resources. Recently, the independent consultancy Visiongain released a study that puts the value of the global shale gas market at nearly $27 billion this year.

All of this promised investment notwithstanding, Ukraine’s energy independence faces many obstacles. The leadership, known to drag its feet and accomplish practically nothing while bolstering favored parties and capitalist cronies, could be a hindrance, especially since current president Viktor Yanukovich sits in Russia’s pocket. (For example, the ramshackle concrete sarcophagus that houses Chernobyl’s notorious No. 6 reactor and all its live radioactive fuel sits dormant, leaking, unfixed and underfunded.) Also, the shale gas and oil shale markets face technological and cost hurdles. And it could be years, perhaps decades, before the Shells, BPs and Chevrons actually begin producing the millions of barrels/tons/cubic feet of oil and gas they claim to have an interest in.

While the future for Ukraine’s energy independence may sound robust, they must be aware of the pitfalls that lie ahead. And that is a lesson for everybody including the US.

–Taras Berezowsky

We recently wrote about the Paris Air show and the growing threat to Airbus and Boeing’s duopoly from challengers in the 100 seat plus sector. These challengers hail notably from China, Brazil, Canada and Russia. The Russians once had a sizable and relatively sophisticated aircraft industry. In the days of the cold war they churned out large numbers of capable combat aircraft although anyone that has flown in a Tupolev or Antanov will confirm their civil aviation offerings left much to be desired. That aging fleet of Russian made aircraft did not fit well with modern airline financing schemes and the major carriers have gradually replaced Tu-134 with 737 and A319’s, much to the relief of travelers. Ninety Tu-134’s still fly with regional carriers however and one tragically went down on June 20 near Petrozavodsk with the loss of 47 lives. We don’t yet know if the crash occurred due to pilot error or mechanical failure as the investigation remains ongoing but President Medvedev has already suggested the rest should cease flying starting in 2012. The timing may or may not have something to do with the launch of Sukhoi’s new SuperJet-100, the makers of which claim they have 170 planes on order. According to an article in Russia Now, intend to ramp up production from 7 last year to 30 this year.

Although Sukhoi tout the SuperJet as an example of a resurgent Russian aviation industry, in reality the plane, assembled at Komsomolsk-on-Amur 4000 miles to the east of Moscow, involves quite a bit more than Russian ingenuity. The French supply the fuel systems, avionics, landing gear and play a heavy role with the engines. The US provides the fire protection system, wheels, brakes, power supply/APU, hydraulics the cabin interior and oxygen systems. Boeing serves as the design consultants. A number of other firms in Europe supply crew seats, flight control systems, environmental control systems and various other parts.   Apart from the airframe, the planes have a multinational collaboration feel as opposed to a made in Russia stamp. Still as a result it may well secure greater global acceptance, an objective Sukhoi has pursued vigorously with sales already made to Latin America and CIS states.

A larger 200+ seat aircraft designed by Tupolev and called the Tu-204 and said to resemble the 757 has not proved so successful. Originally conceived back in the late 1980’s only a few go into production each year and just 69 completed to date. A figure Sukhoi hope to match per annum within a couple of years as they aim for 800 in total sales over the life of the program.

Perhaps this form of international collaboration will pave the way forward for small to medium size jets in the future. Western firms providing the high technology components while local manufacturers build the airframes with the benefit of lower cost labor, land or tax treatment. The market has considerable scope for growth in Latin America, Asia and with established low cost operators in Europe looking to secure better terms than provided by Boeing or Airbus. Meanwhile as Alcoa’s announcement this week of a $1bn deal to supply higher strength lithium aluminum alloy materials to Airbus shows the duopoly will continue to fight back with ever greater fuel efficiency, range and sophistication.

–Stuart Burns

Join us for a FREE upcoming webinar: “High Performance Metals & Alloys Market Outlook and Primer, featuring speakers Scott Fasse of United Performance Metals and Jorge Vazquez of Harbor Aluminum. Click here for additional details and to register.

Amid considerable criticism from some quarters, the US periodically brings anti-dumping cases against specific countries when it feels it has justifiable cause to protect a particular industry from unfair competition, but recent announcements have gained scant coverage in Europe regarding the European Commission’s (EU) much wider proposed review of the GSP system. The General System of Preferences (GSP) was introduced in 1971 to provide a reduced or in some cases zero level of import duty to goods from the poorest developing countries. Today the program covers 176 countries according to the Financial Times, but in the opinion of Karel De Gucht, the EU trade commissioner, it’s long overdue for review. The commissioner suggests the program may have been “too successful, leading to a steady growth in EU imports from developing economies, some of which can no longer be considered developing. According to the FT, the commissioner now wants to change the rules so that wealthier countries would be excluded. Under the new criteria he is suggesting, 80 of the 176 current GSP countries would no longer be eligible for the program. In addition to Russia and Brazil, other candidates suitable from removal would include Argentina, Qatar and Saudi Arabia. “You cannot pretend that some of these emerging countries are the same as they were 10 years ago, said one Commission official. “These are economic powerhouses, referring to current beneficiaries such as oil- and gas-rich Russia and Saudi Arabia (which has a GDP per capita twice that of the poorest EU states such as Bulgaria). Others identified for the chop are Brazil, Argentina, Venezuela, Qatar and South Africa, according to an Economist article.

The move risks being viewed in the current climate as protectionism, but the EU is at pains to say that countries excluded from 2014 when the proposed changes would take effect are free to negotiate bilateral trade deals potentially removing all trade barriers completely. The Euro-zone buzzword here is “reciprocity, for those countries now considered too highly developed for the GSP systems, equal rights of access for goods and services in a bilateral trade deal that cuts both ways is the fairest way to go witness the recent deal with South Korea last year and the imminent deal with Peru and Colombia.

Any Eurocrats setting their sights on China, however, may be disappointed if disqualifying the country in the future fails to have any impact on opening up the Chinese market to EU goods or services – less than 1 percent of its goods qualify for GSP duty reductions so the loss will hardly be noticed.

There is considerable internal resistance within the EU to the proposed changes, not least because the commission suggests the reduction in headline numbers from 176 to about 80 countries will be counterbalanced (in the spirit of the original concept) by increasing the number of countries in a special sub category called GSP+. GSP+ countries are the very poorest in the world and qualify for complete access to the EU’s half a billion consumers, 20 million companies and some of the richest state buyers in the world without any tariffs. Currently there are just 15 countries in this special category, but the commission is proposing increasing this to 49, providing they sign a raft of conventions such as human rights agreements. Countries that could benefit are Pakistan and the Philippines, but the proposal faces opposition from Portugal to Pakistani bed linen imports and from Italy to Filipino tuna imports, guaranteeing it will be far from fair sailing!

The Economist closes with a succinct comment that will probably be deliberately overlooked by most of those in the EU commission. If a revised GSP focuses on the world’s poorest countries, it should preserve its liberalizing spirit by widening the goods covered, notably to agriculture”where EU protectionism is at its most egregious. Like the US, farm policy is the most prevalent and for the world’s poorest countries, with little else to offer than food production, probably the most unfair form of protectionism in practice.

–Stuart Burns

Russia Gripped In a Deep Freeze

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The Russians are a hardy lot; you have to hand it to them. They suffer abysmally cold winters with rarely a grumble and without many of the creature comforts afforded those in equally cold yet more affluent parts of the world like Alaska and Canada. Russia’s travails this year, though, have been especially severe. Our attention to the situation was drawn by a photograph sent to us by our shipping agent by way of explanation for the delay in some containers we were moving from Russia to western Europe. The agent clearly adhered to the old phrase, “a picture paints a thousand words,” to explain why the containers had been stuck at the docks for   10 days and not shipped.

The St Petersburg Times confirmed his story, saying temperatures dropped to -26 degrees Centigrade (-15F) during February and events like the St. Petersburg section of Ski-Run of Russia 2011, a mass nationwide ski race that was set to attract more than 500,000 participants, including an estimated 15,000 from St. Petersburg, had to be canceled due to the cold.

Suicide rates are quite high in Russia, but one 34-year-old man was unsuccessful in adding to the statistics when he jumped from a 13th-floor window on Repishchevaya Ulitsa in the Primorsky district of St Petersburg. He found his path to oblivion blocked by a particularly dense pile of snow. So soft was his landing that he was able to get up and return to his apartment, before eventually being taken to hospital it’s unclear if he was admitted for depression or the results of the fall.

To underline just how serious the consequences of the cold weather have been, BSR Russia reported that for the first time in 20 years, Moscow will not celebrate the Irish national holiday with a traditional St. Patrick’s Day parade (which had grown to be one of the biggest in Europe after Dublin and London). Instead, an indoor event is planned.

On a more serious note, it would appear that the cold weather in Russia and the floods in Australia are to some extent linked and had in large part been accurately predicted by US climatologist Evelyn Browning-Garriss in her Browning Newsletter, reported in the Telegraph newspaper last month. According to Ms. Browning-Garriss, a string of volcanoes in Russia’s far eastern Kamchatka region has been erupting continuously for the last six months of 2010. The dust they threw up diverted winds in the Arctic, pushing cold air over Europe and North America and causing the unusually cold winter in the US this winter. Meanwhile La Nina has been lowering temperatures in the southern hemisphere and crop yields have been down in Australia and South America. The volcanic activity is likely to subside somewhat in coming months and with it the dust clouds, so this winter’s cold weather is unlikely to be repeated next year. The good news is our container ship should thaw out sometime soon and the containers be delivered, we will make sure we wear gloves when we unload!

–Stuart Burns

Is there no end to the strength of the palladium price? Johnson Matthey, producer and refiner of Platinum Group Metals (PGM’s), raised its financial forecast last week on the back of 32 percent growth in the quarter aided by prices of palladium and platinum, the FT said. Back in November the refiner called out a 25 percent rise in palladium prices over the following six months, a rise the palladium price seems on track to achieve, it touched $836.75/ounce last week according to the WSJ and is only slightly off this week at $827.

Palladium has three major uses: first and foremost, it is an auto catalyst, a role it shares with platinum and which varies in intensity from market to market meaning auto sales of one million units in, say, Europe or China, do not equate to an equivalent palladium demand for one million units in the USA or Japan. This point was ably analyzed by Walter de Wet, an analyst at Standard Bank, in a note to clients. Walter explained that although auto sales in Europe are relatively weak, the region is still the largest consumer of palladium for auto-catalytic converters. Auto sales in US and Japan are not yet close to the levels seen in 2006 and 2007, but continue to rise from the very low levels seen in 2008 and 2009, while those in China continue to match those of the US, and remain well above levels seen last year. However, as we explained, just looking at units sold is not a reliable picture of demand, so the bank weights auto sales per region by the amount of palladium consumed in auto catalytic converters in the specific market. This provides them with palladium-adjusted auto sales numbers which they express in graphical format as follows.

Source: Standard Bank

Walter’s palladium-adjusted auto sales numbers reveal that when accounting for palladium usage, 2010 auto sales were still low, but steadily improving. On a metal-weighted basis, auto sales look much more supportive for palladium than it did at the start of last year. It also looks much more supportive than similar figures for platinum mainly because China is a market that is skewed towards palladium use over platinum; indeed, according to a Mineweb article, four times as much palladium as platinum and most of the auto production growth is coming from China.

Electronics is the second largest consumer of palladium (17 percent of global demand) and the Semi-conductor Industry Association figures suggest that the fast-growing Asia-Pacific region commands almost 50 percent of the sales of semi-conductors. Taken as a whole, China could be making up 20 percent of world palladium demand and rising steadily.

So, broadly speaking, palladium demand is rising and the trend is almost certain to continue through 2011 and 2012. So much for demand: what about supply? The market has two principal sources of supply, South Africa and Russia, and between them they dominate the market with some 81 percent of global supply last year, according to the USGS. But a disturbing FT article paints a dire picture of Russia’s ability to continue to supply at the same level going forward. Russia accumulated a vast store of palladium over 50 years in the middle of the last century when it was mined as a by-product for which little use could be found. After years of the state selling controlled quantities each year from these reserves, many now believe it is all gone. Mark Bedford at Johnson Matthey believes Russian stocks are exhausted and since Russia was supplying about 1 million ounces out of the 7 million ounces being consumed, the impact of prices this year or next will be profound. Edel Tully, precious metals strategist at UBS, is quoted by the FT as saying that palladium could surpass $1,000 an ounce if supply from Russian stockpiles dries up.

Certainly one to watch, and for industrial palladium consumers, one to secure at current prices, if it’s not already too late.

–Stuart Burns

MetalMiner and its sister site, Spend Matters, along with Nucor, will host a live simulcast, International Trade Breaking Point, on March 1, 2011. If your company sources products from overseas, you will not want to miss this half-day event.

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Much to England’s outraged indignation, the international football association FIFA awarded the 2018 Soccer World Cup to Russia. Even after fielding the British Prime Minister David Cameron at his suave best, the No. 2 in line to the throne, Prince William, and that icon of the soccer field David Beckham, FIFA still had the temerity to turn down what everyone agreed was the strongest and most sophisticated bid. British officials fumed at the decision, pointing out that England is so well endowed with world-class soccer venues that it could host a World Cup tomorrow.

But whatever the rights or wrongs of FIFA’s opaque and shady dealings, that last point is of more interest to us soccer fans that are also metal fans, because it is reported in a Bloomberg article that Russia has had commit to the construction of 13 new stadiums and the renovation of three more at a projected cost of $3.8 billion, and an operating budget of $641 million for 2017-2018. Russia has also pledged to make “major upgrades and capacity increases at most airports serving the 13 proposed host cities. Having attended domestic soccer games in Russia, I can only say $3.8 billion sounds cheap — most Russian stadiums are in an appalling state of repair and could do with being torn down and rebuilt from the ground up. “We have a lot do to — stadiums, airports, roads, Russian Prime Minister Vladimir Putin is reported as saying. “But this presents us with a challenge ¦ it means the development of roads and transportation infrastructure for our country.

Russian steel companies bounced on the Moscow Micex stock exchange, Severstal was up nearly 8 percent, Novolipetsk jumped 5.1 percent and Magnitogorsk Iron & Steel 3.8 percent on the bid news. Domestic steel prices are expected to rise to a significant premium to export prices following a trend that has already started this year for non-ferrous metals like aluminum where domestic producers have cut export volumes attracted by premium-priced, booming domestic demand.

Brazil has both the World Cup of 2014 and the Olympics in 2016, ensuring a heavy demand on infrastructure spending which should result in support for domestic metals producers. A Businessweek article estimates the two events will help support up to 274 billion reals (US$ 162 billion) in infrastructure spending through 2013 as the government pledged to build roads, ports, railways and power plants to meet the country’s future demand.

South Africa was the last to host a World cup and they reported that 480,000 overseas visitors spent US $1.35 billion during the games, according to estimates in TimesOnline, and Europe was said to have gained a £13 billion ($20 billion) boost from the 2006 World Cup. Maybe the Russian stock markets’ enthusiasm has one eye on an ABN Amro report that the average stock market gain for the winning nation averaged over the span of three World Cups was 10 percent – on the flip side the bank calculates that the average stock market loss for the losing finalist averaged over the same time span was 25 percent.

So whatever alleged bribes Russia paid for the decision to go their way, it was probably money well spent. In the long run, football stadiums (unlike Olympic Games stadiums) tend to get used week-in, week-out for years to come, justifying their construction costs, along with those of enhanced or new airports, railways and highways. Russia has a legacy of neglected infrastructure that the World Cup investments may go some small way towards resolving. I am sure I speak on behalf of all teeth-grinding Brits when I wish them well — I have no doubt it will be a thrilling World Cup tournament.

–Stuart Burns

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