Global metals and mining firms face a difficult operating environment amid falling commodity prices. Russian companies are cutting costs and refocusing on domestic assets.
Russia’s metals and mining industry, the country’s second-most important sector after oil and gas, has faced its share of adversity since the salad days of the past decade, when commodity prices were pushed skyward by a hike in demand from China and India.
Today, as lower commodity prices put pressure on resource-producers around the world, many Russian metals and mining companies are nevertheless showing respectable profit margins, after shedding non-core operations and taking difficult steps towards rebuilding.
Iron ore prices fell to a five-year low in September as Chinese demand slackened off and economic activity in Europe and Japan remained weak. Even so, for Russian firms, signs are emerging that, in some areas, the future may be looking a little brighter.
“The global aluminum industry has turned a corner,” declared Rusal CEO Oleg Deripaska in a statement this summer after the firm, which produces almost 9% of the world’s aluminum, posted an income of $116 million in the second quarter of 2014.
Those results marked the first time Rusal had reported a quarterly profit in over a year. Meanwhile, aluminum prices have been rising in the third quarter. “Positive price momentum is supported by strong fundamentals,” Mr. Deripaska said.
Another hallmark of the sector is that Russian industries outside the realm of oil and gas are better insulated from the blast furnace of Russian politics than their cousins in the hydrocarbon trade.
As U.S. and European officials pursue sanctions against Russian energy, arms and finance firms, the producers of Russian steel, coal, diamonds, iron, palladium, aluminum and potash labor quietly in the background — not fully removed from politics, but farther away from the heat.
Coal, especially, may be due for a renaissance in Russia, thanks to new investment plans in the country’s eastern regions, even as coal miners in the U.S. and Australia face some of the most difficult years in the history of their industry.
National Gold Mine
Russia, the largest land mass in the world, sits atop of some of the planet’s biggest reserves of minerals and natural resources.
The Russian earth holds some 25 billion tons of iron ore, the third-largest reserves in the world after Australia and Brazil.
High up in the frozen north, above the Arctic Circle, a company called Norilsk Nickel produces 14% of the world’s nickel and 41% of its palladium.
Norilsk is also a top-four producer of platinum, with 11% of global output, and a significant player in the copper industry, with 2% of world supply.
State-controlled Alrosa, the world’s biggest diamond miner, taps rich deposits in Siberia to yield 26% of global diamond production. Its South African rival, De Beers, is in second place with 22%.
Despite years of tight control by the Russian government, Alrosa finally opened to public investment last year, raising $1.3 billion in an Initial Public Offering (IPO) on the Moscow Stock Exchange and reportedly selling some 60% of shares to U.S. investors.
Russia is also the third-largest exporter of primary aluminum and steel and has the second-largest coal reserves in the world.
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