Norilsk Slumps to Three-Week Low on China Woes: Russia Overnight

OAO GMK Norilsk Nickel (NILSY) tumbled to the lowest level in more than three weeks in New York and OAO Mechel (MTLR) slid on mounting concern a slowdown in China is crimping demand for metals.

Norilsk, the world’s largest nickel producer, slumped to the lowest level since Feb. 23, swelling their discount to Moscow-traded shares to the most in two weeks. Mechel, Russia’s biggest producer of steelmaking coal, fell the most since March 6. Futures expiring in June on Russia’s dollar-denominated RTS Index added 0.2 percent to 164,040 in U.S. trading.

China saw the weakest economic growth since mid-2009 in the last quarter of 2011, and data from retail sales to home prices are signaling a slowdown. The nation raised fuel costs by the most in more than two years, boosting concern that the world’s biggest consumer of industrial metals will cut manufacturing. Broker Credit Service sees Norilsk dropping 10 percent over the next few weeks, while HSBC Holdings Plc predicts both Mechel (MTL) and Norilsk will retreat as China curbs orders for copper and coal.

“The slowdown in the Chinese economy will lead to weaker demand for metals and coal,” Oleg Petropavlovskiy, a metals and mining analyst at Moscow-based Broker Credit Service, said by phone yesterday. “If demand in China falls, metals prices will be under pressure. If the metals prices retreat another 10 percent, Norilsk Nickel could lose no less than 10 percent.”

Russia ETF Slides

The Bloomberg Russia-US Equity Index (RUS14BN) of Russian companies listed in New York slid 2.1 percent to 108.27, the lowest close since Feb. 22. The Market Vectors Russia ETF (RSX), a U.S.-traded fund that holds Russian shares, dropped 2.5 percent to $31.61, a two- week low. The RTS Volatility Index (RTSVX), which measures expected swings in the index futures, dell 1.1 percent to 32.5 points.

American depositary receipts of Mechel fell 3.2 percent to $10.47 yesterday, the biggest drop since March 6. On Moscow’s Micex Index, the stock declined 3.7 percent to 305.30 rubles, or $10.44. Each ADR represents one ordinary share of Mechel, which made 13 percent of revenue from Asia in 2010, compared with 9 percent five years earlier.

The Standard & Poor’s GSCI index of 24 raw materials fell 1.5 percent to 701.53 yesterday, the biggest one-day drop since March 6. Copper futures fell the most in two weeks, with zinc, aluminum and tin all retreating in London yesterday.

Moscow-based Norilsk slipped 5.8 percent to $18.60 in New York, the lowest level since Feb. 23, to trade 1.4 percent below shares of Russia’s biggest mining company’s traded on the Micex, the biggest discount since March 7. The shares retreated 3.9 percent to 5,520 rubles, or $188.73, in Moscow. Each ADR represents a tenth of an ordinary share.

Asian Sales

“Copper is closely tied to Chinese construction, industrial growth,” Vladimir Zhukov, an analyst at HSBC in Moscow, said by phone. “The slowdown in China would mean a slowdown in Chinese infrastructure and would have an impact on copper.”

Norilsk got 22 percent of revenue from Asian sales in 2010, up from 16 percent in 2006, data compiled by Bloomberg show. Nickel prices were unchanged at $19,050 a metric ton yesterday in London, after slipping as much as 1.5 percent during trading.

United Co. Rusal, the world’s largest aluminum producer, dropped 2.2 percent to HK$5.70 in Hong Kong trading as of 11:37 a.m. local time. Aluminum demand in Europe will be flat, Oleg Mukhamedshin, Rusal’s director of equity and corporate development, said in an interview yesterday on Bloomberg Television’s “Taking Stock” with Pimm Fox. Demand will rise 7 percent globally and 11 percent in China this year, he said.

‘Under Pressure’

OAO Lukoil (LUKOY), Russia’s biggest non-state oil producer, fell 1.9 percent to $62.99 in New York yesterday, trading at a 0.3 percent discount to its Moscow-listed shares. Lukoil fell 0.8 percent to 1,848.30 rubles, or $63.17, on the Micex yesterday. One depositary receipt is equal to one ordinary share.

“If the Chinese economic slowdown continues, the demand for oil will fall and Russian oil companies will come under pressure,” Andrey Ovchinnikov, an energy analyst at Credit Suisse Group AG, said by phone from Moscow yesterday.

Shares of Lukoil, OAO Gazprom Neft, the oil arm of gas export monopoly OAO Gazprom, and OAO Rosneft, Russia’s biggest crude producer, may decline should China need less oil, Ovchinnikov said.

Moscow-based Gazprom Neft (GZPFY) fell 1.8 percent to $26.61 in New York yesterday, the biggest drop since Jan. 4 and a discount of 0.3 percent to Micex-traded shares. The stock dropped 1 percent to 156.21 rubles, or $5.35, in Moscow yesterday.

Polyus Relocation

Crude for April delivery dropped the most in more than three months in New York yesterday as Saudi Arabia, the world’s biggest oil exporter, said it can boost output immediately to stave off global shortages. Oil fell 2.3 percent to $105.61 a barrel on the New York Mercantile Exchange. Brent oil for May settlement declined 1.3 percent to $124.12 on the London-based ICE Futures Europe exchange, while Urals crude, Russia’s chief export blend, retreated 1.1 percent to $121.34.

Polyus Gold International Ltd. (PLZLY), Russia’s largest gold miner, retreated 1.3 percent to $2.98, the lowest level since Jan. 5, to extend last week’s 15 percent tumble, the most since December 2010.

Polyus Gold withdrew an application to a foreign investment commission headed by Vladimir Putin, currently Russia’s prime minister, to establish its legal permanent residence in London, Sergey Lavrinenko, a spokesman for the company, said by phone on March 19. The mining company switched its domicile from Russia to Jersey last year.

Polyus Gold may apply again to redomicile in London once President-elect Putin’s new government is in place, Alexey Chernushkin, director for capital markets and investor relations, said by phone yesterday from Moscow. Putin takes up his third term in the Kremlin on May 7.

“When there is an understanding of what kind of new government we get, we may put in the application,” Chernushkin said.

To contact the reporter on this story: Ksenia Galouchko in New York at kgalouchko1@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net

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