| But for Norilsk Nickel this does not change much yet Nickel quotes on the London Metal Exchange (LME) are the first to recover from the fall observed in the metals market last year. This week they surpassed the level of $7,000 per ton, reaching the highest price in the last ten months. Analysts consider this circumstance positive for Norilsk Nickel. However, they emphasize that the company's financial results will be higher than expected if the growth in nickel prices, as well as other metals, turns into a stable trend.
Last year, prices for all metals dropped significantly. Steel mills experienced the greatest shock. Prices for their products have dropped to a 20-year low, which has forced the governments of several countries to limit the admission of imported products to their markets. At the end of 2001, quotations of aluminum on the LME decreased by 14%, copper and nickel by 20%.
But unlike steel prices, prices for non-ferrous metals began to gradually rise in the fall of 2001. True, only nickel managed to reach the level from which they “started” last year. In January 2001, they fluctuated around $7,000 per ton; in February they rose to $7,600, after which a protracted decline followed. Prices for copper and aluminum are still 11-13% below the level at the beginning of last year.
For Norilsk Nickel, nickel is one of the base metals - its share in the company’s total revenue accounted for 36-38% in 1999-2000, platinum group metals (palladium and platinum) - 40%, copper -- 15%. The downturn in the metal markets had a negative impact on the financial condition of Norilsk Nickel. Based on the results of the most successful year 2000, the company received over $1.4 billion in net profit. Since then, this figure has been steadily declining. According to Renaissance Capital's estimate two months ago, Norilsk Nickel's net profit this year will be just over $400 million.
Therefore, the rise in nickel prices cannot but please analysts. “Everyone knows that metal markets are cyclical,” says Troika Dialog analyst Vasily Nikolaev. “It appears that we are now seeing the beginning of a growth phase.” “An increase in average annual nickel prices by just $5 per ton leads to an increase in Norilsk Nickel’s revenue by $1 million,” notes NIKoil analyst Vyacheslav Smolyaninov.
True, analysts disagree on why nickel became the growth leader. Mr. Smolyaninov does not see any fundamental reasons for this: the situation in the steel industry, which consumes up to 70% of the world's nickel produced, is not changing for the better, demand for the metal is not growing, and production volume is not decreasing. Mr. Nikolaev, on the contrary, believes that nickel's growth was facilitated by the general expectation of an increase in economic growth on a global scale. In addition, Norilsk Nickel’s receipt of a three-year loan secured by 60 thousand tons of nickel two weeks ago had a favorable effect on the market. Mr. Nikolaev expects that, thanks to the improvement in the market situation, the company's net profit this year could amount to $800 million. And Vladimir Titkov from Renaissance Capital is in no hurry to draw conclusions. “To revise our forecasts, we would like to see a more stable dynamics of nickel price growth,” he wrote in his daily analytical review yesterday. In addition, Vyacheslav Smolyaninov notes that palladium prices remain low. Today they are almost two times lower than they were at the beginning of last year.
Norilsk Nickel management yesterday did not comment on the situation on the world metal markets. However, it appears to be optimistic about the future. The head of the Interros holding, Andrei Klishas, said yesterday that Interros is going to reduce its stake in Norilsk Nickel from more than 60% of shares to a controlling stake. Dmitry SIMAKOV |
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